Car finance is an ever-popular scheme that allows drivers to get behind the wheel without forking out a significant sum of cash. With car finance, you’ll typically be paying out a series of pre-agreed monthly repayments to a lender. Therefore, until you have made all of these repayments, the lender is the vehicle’s legal owner.
There are, however, ways to sell a financed car – but it’s contingent on what type of car finance you have.
Different types of car finance
There are four main types of car finance:
Personal contract purchase (PCP)
PCP car finance is like a long-term rental. You’ll usually pay an initial deposit and then a series of monthly repayments for a period between two to four years. As a result, at the termination of the agreement, you won’t own the car unless you pay a lump sum to do so. It is also possible to finance this lump sum, or balloon payment. Alternatively, you can either return the car to the dealer or trade it in for another car on PCP.
Hire Purchase (HP)
You do own the car at the end of a HP finance deal, and, unlike PCP, this means there’s no balloon payment at the agreement’s end. As such, you’ll initially pay a deposit and a series of monthly repayments that are usually higher than PCP finance.
Personal Contract Hire (PCH)
You won’t own the car at the end of PCH finance and are never its legal owner. PCH is a long-term rental – you’ll pay an initial deposit and fixed monthly payments.
As with a personal loan for any purchase, these come from financial institutions and are usually repaid over a longer period than any of the other finance options. In addition, as you are technically a ‘cash buyer’, there’s no balloon payment or deposit.
Can I sell a financed car?
You may be able to sell a financed car that has been purchased via three of the above methods of car finance.
If you have financed your car via a PCH agreement, you will not be able to sell your car. The lender remains the legal owner of the vehicle, and, as such, you are not entitled to sell the car.
How to sell a car financed by PCP
You are not the legal owner of the vehicle until you’ve paid off the pre-agreed monthly instalments. That said, you can sell a car that’s been financed by PCP. Be aware that there will likely be early exit fees or what’s known as voluntary termination clauses in your contract.
You may be eligible for voluntary termination once you’ve paid off 50% of the total finance – and remember that this includes fees and interests. If you haven’t repaid 50%, you can end the agreement early by repaying the difference. Moreover, you can then return the car, which is essentially selling it. From there, you can purchase a new vehicle via alternative car finance.
Alternatively, you can pay off your PCP agreement early. You’ll need to contact your car finance provider to ask for a settlement figure. Once this is paid off in full, you can then resell the car. If the settlement fee is less than the cost of paying your monthly instalments, this may be the more financially savvy option.
How to sell a car financed by HP
As with PCP, you are not the legal owner of the vehicle until all of the monthly repayments are made. Consequently, you’ll need to pay these off before being able to sell the car.
The voluntary termination clause in your contract will allow you to return the car to the lender once you have repaid 50% of the total car finance. If you’ve paid less than 50%, you can usually still return the car. However, this is as long as you make up any remaining instalments that will take you up to half the vehicle’s value.
Alternatively, you can pay the agreement off early and then sell the car, as with PCP above. Remember to request a settlement fee from your car finance provider, which you’ll need to pay in full.
How to sell a car financed by a personal loan
With a personal loan, you’re the legal owner of the car. Therefore you can sell it whenever you’d like – but remember, you’ll likely owe repayments on the loan that you need to upkeep.
My Car Credit can help
If you have questions about how to sell a financed car, the team at My Car Credit can help. We’ll provide guidance on your options depending on your car finance agreement and assist with your car finance eligibility moving forward.
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