More Used Cars Are Being Sold With Outstanding Finance, Warn Experts

According to HPI, one in four used cars it checked last year was found to have outstanding finance against it. Now figures for the first four months of 2018 show that the number has escalated further to one in every three cars.

Reputable car dealers will perform their own vehicle history checks and include these for the buyer’s peace of mind when selling a used car. But private individuals don’t have to. It means buyers must be extra careful when choosing their next, pre-owned motor. Here’s how not to become a victim of an unscrupulous seller.

What does it mean if a car has outstanding finance on it?

After someone takes out a loan to buy a car, they need to arrange to settle the loan with the finance provider before they sell the vehicle. That’s because the finance company owns the car until the debt outstanding on it is paid in full – hence the term ‘outstanding finance’ having negative implications. The car may be registered in the name of an individual, but they are simply what’s known as the keeper, responsible for speeding tickets and so on.

How to avoid being scammed

Knowingly selling a car with outstanding finance against it and not telling the buyer is fraudulent. But there are evidently plenty of potential fraudsters out there - or people who act in ignorance. 

This is why it’s important to pay for an independent history check of any used car you’re contemplating buying. These cost around £15 to £20 from companies such as HPI and MyCarCheck. These tell you if there’s outstanding finance, can reveal if the car has ever been stolen, alert you to when a car’s mileage may have been tampered with and can also help spot vehicles previously declared a write-off by an insurance company.

Another reason for having a history check is that the car may have outstanding finance from the owner before the one you’re buying it from. You might think this isn’t your problem but as we’ve seen, you can’t legally sell a car with outstanding finance on it.

HPI’s Fernando Garcia explained: “The first thing any used car buyer must do is ascertain whether the potential purchase is actually paid for. It’s impossible to tell if a vehicle has outstanding finance just by looking at it, which makes a vehicle history check an even more vital form of protection for buyers.”

If you buy a car with outstanding finance who owns it?

Section 27 of the Hire Purchase Act 1964 relates to cars owned on Hire Purchase or under conditional sale agreements (where part of the car’s price is payable in instalments). It states that if a private buyer ‘is a purchaser of the vehicle in good faith without notice of the relevant agreement’ they obtain ‘good title’ to that vehicle.

In English, that means if you’re sold a car with outstanding finance and there’s no hint of any irregularities, that car is still yours. However, once you discover the car has outstanding finance against it you can’t legally sell the car without settling with the finance company that is owed the money.

If you’re buying a car and the seller has told you it has finance outstanding against it, they should get what’s known as a settlement figure from the finance company. This is the balance that needs to be cleared before the car can be legitimately sold.

Ideally, the vendor should pay the finance company before you hand over any cash. The lender will be able to confirm to you whether the balance has been settled. Remember, never give a vendor the full amount and then hope they’ll settle what they owe. If they ‘forget’ you’ll be seriously out of pocket. And always ask for a written receipt upon payment.

What happens if a finance company gets in touch with you?

Obviously, the finance company is the one potentially out of pocket if a car is sold without the finance being paid. At the very least it’s likely to write to you as the new registered keeper to establish why you’re running a car it thought it owned.

You should contact the company and explain the car was bought in good faith. Provide the name and address of the person you bought it off, when it was bought and the price paid together with a copy of the receipt. You should also contact the previous owner and find out what’s going on. They may have paid off the finance company in the interim. They may feign ignorance. Or they may have disappeared.