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    How to sell a car on finance – the ultimate guide

    Car finance, whether PCP or HP, is often the easiest and most affordable way to buy a new or used car from a dealer.

    Can you sell a car on finance? Yes you can. Selling a car on finance is a very common requirement for motorists these days who may wish to free up money locked up as equity in their vehicle. It’s totally possible to sell a car when there’s still finance outstanding. 

    A huge majority of cars in the UK are bought on finance – mostly Personal Contract Purchase (PCP) and Hire Purchase (HP) agreements.

    Read on to find out more about how to sell a car on finance.

    Almost all new cars bought in the UK in 2022 were bought on finance, and the practice is growing in the used car market too with nearly a fifth of cars bought on a finance agreement. For the avoidance of doubt, we don’t refer to car leasing when we say ‘finance’, because you cannot sell a car you’re leasing.

    According to The Car Expert, the average amount of new car finance debt is just over £25,000, and the total amount borrowed across the country comes to nearly £18b. With car financing such a key cornerstone of the car market, it’s important to understand how this impacts the process when you come to sell your car. We’ve written a car finance myth-buster to help with this.

    Many people don’t know that they can sell their financed car – even before all the contracted payments are made. However, the proper steps must be followed to ensure you’re not breaking the terms of your contract.

    Car financing and how to sell a financed car explained:

    Can you sell a car on finance?

    Yes, you can sell your car on HP and PCP finance, including when there is outstanding finance. You can never sell a car you’re leasing, however, because it’s never really yours.

    Type of financeDeposit required?Who owns the car?Can it be sold on Motorway?
    PCPYesThe finance company, unless a final balloon payment is madeYes, subject to finance settlement
    HPYesThe finance company, until the finance is paid off  Yes, subject to finance settlement

    In HP finance agreements, your total debt is divided into even monthly instalments. In PCP, though, a large portion of the debt is saved for the end of the contract, when it can be paid as a ‘balloon payment’. 

    PCP is extremely popular now, with well over 90% of all new car purchases in the UK in 2022 financed this way. Its popularity is down to its seemingly affordable terms: the deposit is typically lower than in an HP agreement, the monthly payments are lower, and the repayment term is sometimes shorter. 

    However, there are mileage limits to PCP which can increase the likelihood of having to pay extra wear and tear charges at the end of your contract.

    For a full breakdown of the steps to sell a financed car, read on.

    Who owns a car on finance?

    In both PCP and HP arrangements, the registered keeper on the car’s V5C logbook is you, however, the legal owner is the finance company. 

    Legally, you can’t sell a financed car without having gone through the steps to notify your lender properly and arrange the settlement of the balance. What this means is that you can either:

    • Wait until you’ve paid off your financing contract, and sell your car once you own it in full
    • Get a settlement letter from the company, then sell your car to a dealer who will clear the outstanding balance directly with the company, paying you the surplus (if any)

    You might decide that selling before the balance is fully settled is the right move for you, especially if you track your car’s ongoing value and find a particularly good time to sell, based on the market value of your model.

    If you want to stop paying for your financed car, and you’re happy to give it back rather than sell it on, you can also use your voluntary termination rights.

    What is voluntary termination?

    Voluntary termination is a consumer protection that allows you to end the finance agreement early.

    As long as you are financing your car as an individual and not a business, and you have paid at least 50% of the Total Amount Payable (this includes the deposit, any fees, and interest associated with your car debt), you have the right to voluntary termination. 

    You can write to your financing company to let them know that you wish to enact voluntary termination on your agreement. Note that this is not the same thing as voluntary surrender, which would require you to continue making payments.

    When you start the process of voluntary termination, you might find that your company tries to charge you for wear and tear, any excess mileage, and other extra fees. You should be able to give back the car and end the agreement without further paperwork (apart from agreeing to the documented inspection of your car) and payments.

    Can I sell my car with outstanding finance?

    Yes – if you’ve requested a settlement letter from your lending company, and you accept an offer from a dealer who is willing to pay off the outstanding finance either directly with your company, or through you (if both parties agree to that). 

    Unfortunately, if you fail to get an offer for your car that covers the remaining finance (and you still want to sell) you’ll have to cover the shortfall. 

    Most financing agreements are arranged in such a way that you are in ‘negative equity’ for at least half of the duration of your contract. Cars initially lose a lot of value quickly, but then the depreciation slows down, at which point your payments might catch up, and you’ll be in positive equity.

    To sell your car on finance you’ll need a settlement letter from your lending company.

    Is my car in positive equity or negative equity?

    If your current car’s value is worth more than the resettlement figure, you have positive equity. 

    The inverse – when your resettlement figure is higher than the car’s valuation – is negative equity. 

    In the case of PCP, at the outset of your contract, you probably agreed on a Guaranteed Minimum Future Value (GMFV). You can see this as a stabiliser for your car’s valuation – it won’t dip lower than this number. So, you can keep checking your debt settlement figure against this number to ensure you’re still in positive equity.

    How to avoid getting into negative equity

    There are several angles from which to tackle the problem of negative equity:

    • Your car’s valuation
    • Your repayments
    • Your financing agreement

    Your car’s valuation

    The faster your car depreciates, the higher the risk of remaining in negative equity. As long as you have a Guaranteed Minimum Future Value, you should at least break even on your car. The factors within your control that most drive depreciation are mileage and condition. 

    Mileage and service history may be contractual obligations in your PCP agreement – avoid exceeding the stated mileage or under-servicing your car, so as not to risk extra charges when you terminate the contract.

    Your repayments

    If you’ve agreed to a longer-term finance arrangement in order to drive down the monthly repayments, you’ll likely end up paying more in the long term thanks to compound interest.

    The best way to tip into neutral or positive equity is to make some overpayments if possible, or increase your monthly payments. This means you’ll be paying down the debt quicker than the car depreciates, and the debt compounds interest.

    Your financing agreement

    In your next agreement, try to put down as big a deposit as possible against your new car’s value, so that you start off with more equity. This will work in your favour more than putting the same level of deposit down against a higher-value car. 

    car finance calculator
    Your car’s value and your repayment schedule are vital for positive equity on your contract.

    Steps for selling a car on finance

    Step 1: Get a settlement letter

    Contact your finance company to advise them that you’re considering selling your car. Ask them for a settlement letter. 

    While most lenders should be amenable to a sale (provided you fully repay the finance at the time of sale), you should confirm their policy before proceeding.

    Some lenders may charge a fee for early settlement. If this is the case, it should be stated in the terms of the contract you signed when you first took out the finance on your car.

    Note: Settlement figures from financial institutions will have an expiry date attached. If you do not sell your car before this date, you’ll need to request a new settlement figure before proceeding.

    Step 2: Value your car

    To sell your car, you (or your buyer) need to clear the outstanding finance. So, you need to know that your car can fetch that much in a sale. Use Motorway’s car value tracker to stay on top of your car’s ongoing value, so you can choose the right time to sell. 

    Our valuations are based on current data from our nationwide used car marketplace.

    Step 3: Prepare your car

    Before you can sell your car, you’ll need to be in receipt of the written settlement figure from your lender. Once you have it, complete the following pre-sale checklist to ensure you get an offer as close to full valuation as possible:

    Documents

    • V5C logbook document –for proof of ownership
    • Service history – a full service history will lead to better offers for your car
    • MOT certificates – ensure you have a copy of your current certificate

    Car preparation

    • Spare key – a spare key will help to ensure you receive the full valuation
    • Clean – it’s worth paying for a full clean to ensure your car is looking spotless
    • Minor repairs – scratches and dings can decrease your buyer’s offer when they inspect your car

    Step 4: Get an offer

    If you’re selling with Motorway, upload your car’s details to the platform to enter the online daily sale, and wait for your best offer.

    If you’re selling to an instant car-buying company or dealer, follow their process to get an offer for your car. Make sure you make it clear your car has outstanding finance.

    Step 5: Confirm the sale

    If you’re selling to an instant car-buying company or dealer, they may wish to inspect your car and documents in person before releasing funds to settle the finance and conclude the sale. They will either:

    • collect your car at your home address
    • ask you to deliver it to a local depot

    If you’re selling with Motorway, a representative from the dealership buying your car will come to you to give the car a final check over and drive it away.

    Make sure to have your settlement letter to hand, as well as other key documents listed in step three.

    All the necessary documents will be needed to complete your sale, however you choose to sell your car.

    Step 6: Settle the outstanding finance

    The process of settling your outstanding finance will vary depending on both your finance provider and the dealer buying your car.

    Some car buyers will deal directly with your finance company to settle the outstanding balance, while others may ask you to settle the finance independently.

    If the latter, then you’ll normally be able to do so over the phone, or via online banking.

    You should discuss the exact process with both your finance company and your chosen car buyer.

    Step 7: Complete the sale

    With the outstanding finance finally settled, the car is officially yours to sell.

    Complete the necessary paperwork with the buyer (a dealership or marketplace such as Motorway) and conclude the sale of your car.

    Step 8: Receive the surplus

    If the sale value of your car was greater than the value of outstanding finance, you’ll receive the balancing payment from your car buyer after completion of the sale.

    Note: Some car buyers will release these funds instantly, while others may take 3-4 days to complete the transfer.

    With your outstanding finance settled, your sale might give you some extra cash.

    Step 9: Feedback to your lender

    There are many reasons why you might want to sell your car during the term of your finance agreement. For example, you might simply want to upgrade to the latest model.

    But if you’re looking to sell as you are struggling to meet repayments, then always speak to your lender to inform them of your situation.

    Lenders understand that financial circumstances change, and will do what they can to help you manage your payments, or arrange an alternative repayment schedule.

    The best way to sell your financed car

    If you’re thinking about selling your financed car quickly and easily, at Motorway we offer a simple – and completely free – method of getting the best price when selling, whatever the model. For financed cars, all we need to get started is a settlement figure from your finance company (including a balloon payment if applicable).

    First, enter your reg on the homepage and you will be provided with an instant estimated sale price based on up-to-the-minute market data. We’ll then ask you a few easy questions about your car and guide you through the photos you need to take to complete your vehicle profile. It can be done right from your phone – in a matter of minutes.

    If you choose to enter your car into a daily sale, it will be shown to our nationwide network of more than 5,000 verified dealers looking to add to their stock of used cars. Interested dealers will then compete to buy your car, offering you their best price.

    In as little as 24 hours you will receive your best offer – and, if you choose to go ahead with the sale, your car will be collected for free by the dealer and the money will be quickly and securely transferred to your bank account.

    Dealers compete to give you their best price for your financed car, with Motorway

    Should you sell your car?

    Want to learn more about the best ways to sell your car? Check out more of our guides here, covering everything you need to know about different finance schemes, and what they mean for you as a car owner.

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