Everything you need to know about selling your financed car

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Motorway

Most people in the UK have no idea they can sell their car before their financing contract is up. And, in many cases, this is the best way for motorists to get value for money.

The majority of new cars bought in the UK are financed, either with Personal Contract Purchase (PCP) contracts or Hire Purchase (HP) agreements, and motorists are taking out an average of £25,000 in debt. At the same time, most people are unaware that they can lawfully sell these cars before the final contract payment is made, so they could be losing out on thousands by holding onto their cars long after their values drop.

It's not hard to sell a financed car; there are just a couple of extra steps to undertake to make sure you’re doing so lawfully.

Car finance explained

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.

When your car is financed through PCP or HP, the finance company owns the car until your balloon payment (or final payment, in the case of HP) is made. Then, ownership transfers to you. Although you’re not the owner of your financed car during the contract term, you are the keeper.

HP finance consists of equal monthly repayments of the total money owed; whereas PCP finance calls for lower repayments and a shorter contract term, as well as taking a lower deposit. This is why there's a bigger, ‘balloon’ payment to end the contract if you want to keep the car and own it outright.

Although PCP contracts have favourable payment terms, there tend to be mileage caps in place and charges for significant wear and tear. HP contracts, however, tend to be simpler.

PCP has become extremely popular, and is a major contributor to the average level of car debt taken out by individuals, which has increased rapidly over the past few years to about £25,000.

Selling your financed car: paperwork

Surprisingly, it's not too fiddly to sell your financed car. Before you do anything else, there are two pieces of paperwork for you to handle. From there on out, it's almost an identical process to selling a car you own outright.

First: look at your financing contract carefully. In particular, HP contracts may stipulate a minimum repayment level before taking steps to sell your car. When this is the case, it's likely to be approximately 50% of the total money owed (not the same as the car value, as fees and interest are included on top).

The next step is asking your lender for a settlement letter. This is the key document for selling your car with outstanding finance. Once you’ve requested the letter, this means you have demonstrated your intent to sell the car with the owner's knowledge.

The settlement letter will confirm the cost of paying off the contract at the point of issue. In the case of a PCP contract, it might also confirm the ‘Guaranteed Minimum Future Value’ (GMFV) as agreed in the contract.

This letter is necessary for car dealers to make an offer for your car, and be in a position to clear the remaining balance with your lender when they make the purchase.

Next step: valuation

In most car sales, this would be the first step. Get a free, instant valuation for your car to know what it would sell for today. The ideal situation is that it's worth more than both your GMFV and the remaining balance. This is called being in ‘positive equity’, and means that if your car sells for more money than you owe on it, you keep the surplus.

If you’re in negative equity, your car sale will only partially clear the balance, and you’ll have to cover the shortfall. This is more likely to happen early on in your contract, or if your car has suddenly lost a lot of its value based on its market price.

The good news is that depreciation can start with a sudden steep decline, before tapering off, meaning that your car's value is highly unlikely to plummet indefinitely.

Sell your financed car, step by step

You’ve got the contract, the settlement letter, and the valuation – those are steps one and two. You’re ahead of the game! Here's how you get all the way through to a completed sale, with no hassle.

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.

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 need to clear the outstanding finance. So, you need to know that your car can fetch that much in a sale. Get a free, instant valuation now.

Step 3: Prepare your car

Complete the following pre-sale checklist to ensure you get an offer as close to full valuation as possible:

Documents

Car preparation

Step 4: Get an offer

If you’re selling with Motorway, upload your car's details to the platform to enter the daily online sale, and get your best price. Our UK-wide network of over 5,000 dealers are used to buying cars with outstanding finance. They’ll still be able to pay your lender (and you, if there is surplus) instantly, for free.

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 may ask you to drive to a local hub or depot in order to do this.

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

If you’re selling with Motorway, a representative from the dealership buying your car will come to your chosen address (normally home or work) to give the car a final check over and make payment, before driving the car away. Note that when selling with Motorway, you’ll automatically complete Steps 6, 7, and 8 all in one with Step 5, with help and support from our Customer Services team.

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 to transfer ownership to them, 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.

However, if you sold your car for less than the outstanding finance, you will have had to pay a surplus to your lender when clearing the finance.

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

Step 9: Give your lender (and your buyer) some feedback

Buying and selling a car can be stressful – so it's important to share your feedback with the companies you’ve worked with. If you had a good experience with either your lender or buyer, it's worth telling them what they did right.

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).

Enter your reg on the homepage for an instant estimated sale price based on up-to-the-minute market data. From there, you can sell your financed car, right from your phone!

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Motorway

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