What is outstanding finance?

Car finance can be a great way of spreading the cost of a new or used car. By splitting the lump sum into affordable monthly payments, you can get back on the road as soon as possible.
 
Finance agreements are legal contracts – when you sign on the dotted line, you’re agreeing to make all the payments outlined for between one and six years.
 
Fast forward a few years and you’re ready to move on to a newer model or switch out your Mini Cooper for a SUV, but hang on, your debt isn’t clear yet, you’ve still got outstanding finance.
 
What happens next?
 
Don’t worry; we won’t keep you in suspense. Read on to find out more about your options when it comes to dealing with outstanding finance, whether you’re a buyer or a seller.

What is outstanding finance and how does it work?

Despite its name, outstanding finance isn’t all that outstanding. In fact, it’s a fairly pedestrian term used to describe an amount of money that you owe against a loan. 
 
With certain types of finance, the loan is secured against your wheels. That means, while you’ll be its registered keeper, the car technically belongs to the finance company until all your repayments are made.  
 
While you’re making your monthly payments, the amount still due on the loan is known as outstanding finance.
 
But why does it matter?
 
Well, the good news is that it usually won’t unless you’re buying or selling a used car.
 
If you’re looking to switch things up and get a new set of wheels mid-way through your loan term, it’s important to know that it’s against the law to sell a car with outstanding finance. There are ways to end your loan term early, but you can’t simply sell up and start again without following the proper processes.
 
On the other side of the transaction, if you’re unlucky enough to buy a car with outstanding finance, you could find yourself in a sticky situation. Depending on the situation, you could be left with a hefty bill from the finance company or even lose your new wheels entirely if it’s repossessed by the lender.

What are the types of finance that can be outstanding?

You’ll typically come across outstanding finance with Hire Purchase (HP) and Personal Contract Purchase (PCP) agreements.
 
Both loans are secured against your vehicle. You’ll be its registered keeper and responsible for its upkeep, MOT, servicing, fuel, and more, but the finance company will be its legal owner throughout the loan term.
 
With HP, once you’ve made all your repayments and covered the small ‘Option to Purchase’ admin fee, congratulations – it’s officially all yours!
 
PCP is also a lot like HP but doesn’t necessarily lead to car ownership. Instead, once your loan term ends, you can choose to hand the car back, buy it by paying the one-off balloon payment, or use any available equity as a down payment in a new deal.
 
With HP and PCP terms lasting anywhere from one to six years, it’s fair to say that you could be waiting a while until you can drive off into the sunset with no finance hanging over your head.
 
But think of it from the finance company’s perspective; they get the peace of mind of knowing that if you start missing payments, they can repossess the car to cover your debt. That’s also why you can’t sell or modify a car with outstanding finance – simply put, it’s not yours to sell!
 
Looking for an alternative where you own the car outright from the start?
 
Personal loans work a little differently. This finance type is usually unsecured so, while you’re still obligated to make all your repayments on time, you’ll be the car’s legal owner straightaway.

What are the risks of buying a car with outstanding finance?

Whether you’re browsing online or exploring your local dealer’s forecourt, buying a car with outstanding finance probably isn’t on your dream wheels wish list.
 
However, even if you’ve made an innocent mistake, you could find yourself dealing with some stressful consequences.
 
Firstly, don’t panic; you probably won’t be getting a knock on the door from your local police, but don’t be surprised if the finance company comes calling with a bill.
 
That’s because it’ll be up to you to prove that you’re the car’s rightful owner and you bought it in good faith. Otherwise, you could be found responsible for the outstanding finance debt or at risk of losing your new pride and joy to repossession!

How can I check for outstanding finance?

Luckily, there are a whole host of online services that can help you find out whether the model you’ve fallen for has outstanding finance before you make things official.

And that’s not all; these tools can tell you if there’s any finance owed, but they can also check its write-off status, number of previous owners, and MOT history.

Depending on your Google skills, you could get these checks for free or just a few pounds, although more in-depth background searches could cost more.

We’ll let you in on a (fairly well known) secret; once you’ve downloaded Carmoola’s app you can run any number of free HPI checks which will help flag if there’s outstanding finance attached to a vehicle. 

Complete peace of mind? It’s on us.

How can you protect yourself from outstanding finance issues?

We don’t want to sound like your old headteacher, but it really can pay to do your homework.
 
Doing your due diligence and running online checks before committing to a used car purchase can help you avoid any nasty surprises – and if you get cold feet, don’t feel pressured to buy.
 
If looking at a second-hand car from a private seller, you can always ask them if there’s any finance outstanding. It might sound obvious – and there’s no guarantee they’ll be honest – but if you can get it confirmed in writing that could be the protection you need, just in case.
 
Found your dream wheels on a dealer’s forecourt or website? You can probably feel pretty confident as any reputable dealer should have carried out checks before listing the model for sale. It’s in their interest not to sell cars with outstanding finance (or end up on the wrong side of the law!)

What should I do if I bought a car with outstanding finance?

First things first, you need to prove your innocence.
 
We know that goes against the whole innocent until proven guilty thing, but in the world of outstanding car finance, it could be tough to keep your new wheels if you end up in a he said/she said situation.
 
File anything that could prove you bought the car in good faith and didn’t know it had finance outstanding. That includes the original advertisement, any messages you exchanged with the seller, and your receipt.
 
Don’t be offended if the finance company still gets in touch with you and launches an investigation – that’s all part of the process.
 
But, if you can prove you were the innocent party, you might not lose your car or need to pay the outstanding debt.  
 
There are no guarantees though. If the finance company doesn't find in your favour, they might ask you to cover the remaining finance payments or move to repossess.

Can I sell a car with outstanding finance?

Unless you’re planning to kickstart a career in the criminal underworld, you can’t sell a car with outstanding finance.
 
As you’re not its legal owner, you’ll technically be trying to sell someone else’s property – and unsurprisingly, that’s against the law.
 
Does that mean you’re stuck until the loan term ends? Not necessarily.
 
You can choose to end your agreement early and become the car’s legal owner by paying the settlement figure. You can request a settlement figure from the finance company at any time and it’ll be the amount you need to pay to clear your debts plus any early repayment charges.
 
The one exception to this rule: personal loans. In that case, you’ll own the car as soon as you use the loan to pay the seller. Keep up with your repayments and you’re free to do whatever you like with your new wheels: sell up, part exchange it, or add a turbo stereo and go faster stripes if that’s your thing.