What happens if I buy a car with outstanding finance?

New car finance deals are incredibly popular, so much so that almost 90% of private buyers use some form of finance to purchase their new car.

Such popularity means there is a huge number of cars in the UK with outstanding finance. That’s perfectly normal and just means the person running the car hasn’t paid off the loan yet, but they don’t technically own the car until they have.

Many common forms of car financing don't allow you to sell the car until you have paid off the loan in full. However, that doesn’t stop some people from selling the car with outstanding finance, even though doing so is illegal.

As a result, lots of people have unwittingly bought a used car with an outstanding loan. Here’s what to do if it happens to you.

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.

You should include details about when you bought the car and from whom, along with other information such as a link to the advertisement, if it still exists, and a copy of the receipt or sale certificate.

You should also contact the individual or business that sold you the car – but make sure you do so in a formal and polite manner, again keeping copies of any correspondence you send or receive. This could be difficult, though, because if the seller knew the car had outstanding finance, chances are they won’t be easy 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.

We’re talking about private buyers here, because the rules can be different for businesses buying cars to sell or hire.

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 best way to find out if a car has outstanding finance is a history check. A number of companies offer this service, and basic checks can 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, a history check is a good idea if you’re serious about buying a used car, because they can expose other elements, such as whether or not a car has been damaged or clocked (had its mileage adjusted), for example.  

What if I find out the car has outstanding finance before I buy it?

Don’t buy the car and walk away. If you know the car has outstanding finance and buy it anyway, you’re just as culpable as the seller and don’t have good title to the car. If the finance company can prove that, it can rightfully recover the vehicle.

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.

Next: Trading in a car with negative equity >>

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