Here’s everything you need to know about buying a car with outstanding finance on it.

We’re supposed to be living in an age of austerity, and if you believe the papers, a worrying proportion of us are in the red. Despite this, new car sales are increasing every month – so how can this be? The answer is simple; it’s all down to the ready availability of credit, and in particular purchasing schemes such as the Personal Contract Plan (PCP).
New cars have always been a costly purchase, which is why so many are made using some form of credit. Now, thanks to the rise in popularity of the PCP, more than three-quarters of new car sales to private owners are through finance. So if you’re buying a used car, you’ve got more chance than ever of buying something that hasn’t yet been paid for; one in every four HPI checks highlights that there’s outstanding finance.
Finance and the law
It’s illegal to sell a car that still has oustanding finance on it. If a car is bought on credit, before it can be sold the finance company must be contacted and they’ll provide a ‘settlement figure’, which is the cost to pay everything off. This must be paid in full, along with any early repayment fees, before the car can be sold.
So if you’re in the market for a used car, the first thing you must do is ascertain whether your potential purchase is paid for. That means buying a car history check, but not all of these disclose any outstanding finance; the HPI check tells you this and much more. Don’t rely on the vendor showing you their HPI report though, as fake checks can be shown, so you must do your own.
Of course I could just end at this point; you get an HPI check, you establish whether or not there’s any outstanding finance and you make your buying decision accordingly. But what if you don’t bother getting that check? What are you letting yourself in for? As you’d expect, it could be a whole lot of grief…
Multiple cans of worms…
If you buy a car that hasn’t yet been paid for, it still belongs to the company that’s financing it. They’ll expect the registered keeper to hand over the monthly payments, so when that becomes you, they’ll hold you liable for whatever is outstanding – and that could be thousands of pounds.
You do have a defence though, and that’s section 27 of the Hire Purchase Act (1964). This says that if you buy a car in good faith and the vendor doesn’t tell you of any outstanding finance agreements, you still have good title to the car. But let’s face it, considering the hassle you could have to endure if you’re unlucky, forking out £19.99 for a vehicle check must seem like a no-brainer at this point?
But what if you really want the car and the seller has been honest about the outstanding finance? It’s very simple – potentially. All that’s required is that the vendor gets the settlement figure from the finance company and either you or the seller pays it off. Whatever you do, don’t pay the asking price and agree with the vendor that they settle the finance; they’ll probably ‘forget’ to do so and it’ll be you who has to sort things out.
The finance company can’t give you the settlement figure because of the Data Protection Act, but if the vendor gets it you can confirm it with the lender. You can then buy the car less the value of the settlement figure, paying the latter directly to the finance company. If the settlement figure is greater than the asking price of the car, it’s up to you to reach an agreement with the vendor and finance company. Things can get messy in this situation, but most things can be resolved with negotiation.
Further down the line
It’s possible for someone to unwittingly buy a car with outstanding finance on it and to run it for years with no problems. Then when they come to sell it, its shady history comes to light. That’s why you’ve got to be wary of the previous vendor as well as the current one – even though you’ve never met them. By this point the car might be worth peanuts, but it’ll still be listed as having outstanding finance on it, which means the vendor can’t legally sell it on, until they’ve sorted things out.
If you do buy a car with outstanding finance on it, probably the first you’ll know about it is when the finance company gets in touch to say you owe a bundle of cash. It’s at this point that you need to tell them the name and address of the person you bought it from, how much you paid for it and the date that it changed hands. Also include a copy of the receipt you were given.
Your next task is to get in touch with the person who sold you the car, but if they’re unscrupulous enough to sell a car they don’t own, they’re unlikely to suddenly develop a conscience. They’ll do everything they can to avoid coughing up, which is when you’ll have to resort to suing them – assuming they haven’t disappeared altogether.
To have any chance of keeping the car you’ll have to prove that you’re an innocent purchaser; that you did everything you could to ensure you wouldn’t get caught out. That’ll probably mean going to court and if there’s anything you could have done to protect yourself – but that you didn’t do – you’re unlikely to succeed. At which point, 20 quid for a history check will seem like the bargain of the century.
* For a run down of the different types of car finance, click here

Richard Dredge
June 2015