Many used cars were bought on finance. That is fine, as long as the finance is paid off before the car is sold. The danger is buying a car that still has money owing on it, because in many cases the seller does not actually own it.
Who owns a car on finance?
It depends on the type of agreement.
| Agreement | Who owns the car until it is paid off? |
|---|---|
| Hire purchase (HP) | The lender |
| Personal contract purchase (PCP) | The lender |
| Conditional sale | The lender |
| Lease or contract hire | The leasing company, always |
| Logbook loan (bill of sale) | The lender holds the car as security for the loan |
| Personal loan | The borrower, because the loan is not tied to the car |
Under hire purchase, PCP and conditional sale, the person driving the car is using it, not owning it, until the last payment is made. If they sell it before then, they are selling something that belongs to the lender.
Why cars with finance get sold
Many sellers with finance are not dishonest. Some forget, some plan to pay it off from the sale, and some do not realise a PCP car is not theirs to sell until the final payment is made. A few sell cars with finance on purpose. For you as the buyer, the risk is the same either way.
What happens if you buy it
The lender can try to recover the car from whoever has it. If that is you, you could lose the car and the money you paid, and be left trying to get it back from a seller who may have disappeared.
The protection for private buyers
There is some help. Part III of the Hire Purchase Act 1964 can protect a private buyer, meaning someone who is not in the motor trade, who buys a car in good faith without knowing about the finance agreement. If it applies, you may be able to keep the car.
But do not rely on it:
- It is not automatic. You may have to show you bought in good faith, which can mean a dispute with the lender.
- It does not cover logbook loans (bills of sale).
- It does not protect motor traders.
- If a check showed the finance and you bought anyway, you were not buying in good faith.
The simple rule
If finance shows up, do not pay until the seller has settled it and you have written confirmation from the lender that it has been paid off.
Buying a car that is on PCP
PCP deals usually end with an optional final payment, sometimes called a balloon payment. Until that is paid, the car belongs to the lender. A seller who wants to sell before the end of their PCP needs to settle the agreement first, which usually means paying off the remaining balance, including the final payment.
How to check for finance
The V5C logbook does not show finance. It records the registered keeper, who is not necessarily the owner, so a car on finance has a normal-looking logbook. The only reliable way to know is a finance check.
Our outstanding finance check is part of the full history check, which costs £4.49, or £3.00 a check in a pack of 10. It uses our licensed data supplier, which draws on finance company records. If a live agreement is recorded, you see:
- The lender's name and phone number
- The agreement type, such as hire purchase or PCP
- The start date and term
- The agreement reference, so the lender can find it quickly
Run the check as close to the sale as you can. An agreement taken out after your check will not appear on it, and a recent settlement can take time to show.
What to do if finance shows up
- 1Do not pay anything yetNot even a deposit. Tell the seller what the check found.
- 2Ask the seller to settle the agreementThey contact the lender for a settlement figure and pay it off. A genuine seller will usually do this without fuss, or show you that they already have.
- 3Get written confirmation from the lenderYou need confirmation from the lender itself that the agreement has been paid off. A screenshot from the seller or a verbal promise is not enough. The lender's phone number is in the report.
- 4Then complete the saleOnce you have the confirmation, you can pay. Pay by bank transfer and get a written receipt.
If the seller says the agreement is already paid off, the lender can confirm that to you directly. Use the lender's phone number from the report rather than one the seller gives you.
Buying from a dealer?
A dealer should clear any finance before selling a car, and you have stronger rights under the Consumer Rights Act 2015. It is still worth running a check. See buying privately or from a dealer.
Red flags
- The seller says the finance is nearly paid off and they will clear it after the sale.
- The seller's name and address do not match the V5C.
- The price is well below similar cars.
- The seller pushes for cash or a quick sale.
- They are reluctant to let you run a check or see the logbook.
- The seller cannot tell you which lender they used, or says they have lost the paperwork.
If it has already happened
If you have bought a car and a lender gets in touch, do not ignore it. Gather your evidence: the advert, messages, receipt and proof of payment. Citizens Advice can help you work out whether the Hire Purchase Act protects you.
Next time, run the full check before you pay. It is the simplest way to make sure this never happens again, and our used car buying checklist shows where it fits in the process.