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What happens if I sell a car with outstanding finance?

Both new and used cars can have hire purchase agreements taken out on them. It is becoming an increasingly popular option for owners looking to spread the cost of payments, and with over 7 million second-hand cars and vans sold in the UK each year, authorities are seeing a rise in the cases of those sold illegally to unwitting buyers on the private market.

It is not illegal in itself to sell an automobile that has had a hire purchase agreement on it. But sellers must ensure they comply with the law when it comes to making the sale. This is because when a vehicle has hire purchase taken out on it, it does not actually belong to the person whose name it is in. It belongs to the finance company, and they have the power to seize it if payments cease to be made on it.

Before selling a hire purchase vehicle, you must first advise the finance company and request the settlement figure required to repay the loan in full. You must then pay this settlement figure, plus any additional fees, for example early repayment fees and administration fees. Until this is done it does not belong to you. It may be possible to arrange to pay the outstanding balance of the loan in instalments. Also bear in mind that you should keep your insurance policy updated as it is affected by hire purchase agreements.

Private buyers are always advised to do a history check, but not all do so. It is simple enough to do, however, by arranging a data check through the AA or RAC or an HPI check. When a hire purchase agreement is taken out, the finance company will automatically register it on the HPI and Experian databases.

If you sell an automobile with outstanding finance on it without informing the buyer of the situation, it is likely that the finance company will track them down to repossess it. It is your responsibility as a seller to repay the finance and to act in accordance with the law, and ignorance is no excuse in these circumstances.

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It is possible that the buyer will be allowed to keep the car, if they bought it from you in good faith, and in the motor trade this is known as having good title. But if the finance company repossess it, then the buyer may decide to take you to court to recover their costs. After all, they have paid full price and have nothing at the end of the day to show for it. While this can be expensive and inconvenient for the buyer, if they have paid a not insignificant sum it will probably be worth it.

For the seller, the consequences could include being charged with fraud. So always ensure you have squared things with the finance company and that you have the paperwork to prove this before putting an automobile with outstanding finance up for sale.


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