What happens if I buy a car with outstanding finance?
Thousands of used cars are sold with outstanding finance to unsuspecting buyers each year. We explain what to do if you fall victim...
Nearly nine in 10 new cars sold in the UK are funded via some form of finance. For many, spreading the cost of a new car over several years can reduce the impact of such an expensive purchase and allow them to choose a model they might not have been able to afford otherwise.
Under most forms of financing, such as personal contract purchase (PCP), hire purchase (HP) and personal contract hire (PCH), drivers don’t own the car they’re paying for until they have paid off the loan in full, if at all. As a result, they typically don’t have the right to sell it until they’ve made their last payment.
Nevertheless, some drivers still break the law by selling a car with outstanding finance, with buyers often completely unaware until the finance company reaches out.
Here, we share exactly what to do if you unknowingly purchase a used car with outstanding finance and how you can find out before you buy.
What happens if I buy a car with outstanding finance?
If you bought a car and genuinely had no idea that it had outstanding finance, you have the right to keep it. This is called ‘good title’ and means you bought the car in good faith with no prior knowledge of the problem.
However, the finance company that issued the loan will still want its money back and may contact you about the car. In these circumstances, it's up to the finance company to prove that you don't have good title, not the other way around.
It’s still a good idea to respond to any communication you receive from a finance company, though, as it shows that you’re honest and willing to cooperate. Emailing or writing to them to explain the situation is a sensible thing to do, and you should keep copies of any correspondence you send or receive.
When communicating with the finance company, you should include details such as:
- When you bought the car
- The individual or company you bought the car from
- A copy of the receipt or sales certificate
- A link to the advertisement (if it still exists)
You’ll also need to contact the individual that sold you the car. This can be difficult to achieve, because if the seller was aware the car had outstanding finance, they’ll likely be tricky to pin down. Equally, if they’d bought the car from someone else who’d sold it with outstanding finance, they may well be just as in the dark as you.
If the car in question came from a dealer, it’s best to contact them as soon as possible. It’s a good idea to send them a HPI check, which will offer proof that there was outstanding finance on the car before you bought it. Hopefully, the dealer will pay off the outstanding finance and share proof that the matter has been resolved; however, under the Consumer Rights Act 2015, you also have the option to return the car for a full refund within 30 days of purchasing it.
No matter the circumstances, it’s important that you contact the seller in a formal and polite manner. It’s a good idea to keep copies of any correspondence you send or receive for future reference.
What if that doesn’t work?
It’s possible that the finance company might not accept your explanation and demand that payments are made or the car is returned. Again, clear communication is your best option, but there is a chance that the company may persist and attempt to recover the car.
If this happens and you're confident you have good title to the car, you should send a formal complaint to the finance company and contact Citizens Advice and the Financial Ombudsman.
If all else fails, you could consult a solicitor who will be able to advise you about legal action to reclaim the car or your money.
How can I find out if a car has outstanding finance?
The easiest way of finding out whether a used car has outstanding finance is a history check. Various companies allow you to access information about the car by simply entering the registration number. Basic checks start from less than £5, although you’ll pay slightly more for checks that reveal more detailed information.
Even if you aren’t particularly worried about outstanding finance, it’s a good idea to run any used car you’re interested in buying through a history check. All services will be able to expose other elements that might be a cause for concern, such as whether the car has ever been reported stolen, written off or clocked (had its mileage adjusted). You’ll also be able to see the car’s MOT history, which can help to assess its condition.
What if I find out the car has outstanding finance before I buy it?
Simply put, if you find out that a used car has outstanding finance, don’t buy it. By purchasing a car you know has outstanding finance, you’re just as culpable as the seller and don’t have good title to the car. As a result, if the finance company is able to prove it, it can rightfully recover the vehicle from you.
Unless the seller agrees to pay off the debt and provide you with absolute proof that the car no longer has outstanding finance (and even then, you might want to check with the finance company), buying such a car is to be avoided at all costs.
