While purchasing a car with outstanding finance may seem like a good deal, it comes with potential risks and legal implications. Understanding your rights can ensure you’re protected in the event things go wrong. Here’s what you need to know about your rights when buying a car with outstanding finance.
What is outstanding finance?
Outstanding finance means the car you’re looking to buy is still being paid off by the current owner under a financing agreement. This could be through a hire purchase (HP) or personal contract purchase (PCP) plan. If the car still has a balance left to pay on the finance, the lender holds a legal claim over the vehicle, known as a “finance agreement” or “secured loan.” If the car is sold without the finance being settled, the lender has the right to repossess it.
What happens if the car has outstanding finance?
If the car you purchase has outstanding finance and the debt is not settled, the previous owner may still owe money to the finance company. In this case, the finance company could claim the car back, even if you’ve paid for it. This means that even though you’ve bought the car legally, the lender could take it away to recover the debt, leaving you without your money or the vehicle.
This situation can happen if the car is sold without the finance being cleared first, either because the seller is unaware of the outstanding finance or because they’re trying to get rid of the car quickly. Unfortunately, as the buyer, you’re not protected from this unless you take precautions beforehand.
Your legal rights as a buyer
When you purchase a car, you are protected by consumer law, specifically the Sale of Goods Act 1979 and the Consumer Rights Act 2015. These laws ensure that goods, including cars, must be as described, of satisfactory quality, and fit for purpose. However, when it comes to buying a car with outstanding finance, these rights can be complicated.
If you buy from a dealership
If you buy from a licensed dealership, they are legally required to ensure the car is free from any outstanding finance. If it turns out that the car has a finance agreement in place and the dealership didn’t disclose it, you may have the right to a full refund or a replacement vehicle. In this case, the dealer is responsible for clearing the finance, not you.
If you buy privately
If you purchase the car from a private seller, the situation is a bit trickier. Under the Consumer Rights Act, private sales don’t carry the same legal obligations as dealership sales. This means that the seller isn’t necessarily obligated to disclose whether there is any outstanding finance. However, the car must still be described accurately, so if the seller fails to mention outstanding finance, they could be in breach of contract.
In the case of private sales, you can protect yourself by conducting a thorough check before finalising the purchase. Always check the car’s history via a service such as the HPI Check, which can confirm if the vehicle has any outstanding finance.
Steps to take when buying a car with outstanding finance
There are several steps you can take to protect yourself when buying a car with outstanding finance.
1. Check the car’s history
Before committing to a purchase, it’s important to run a full vehicle history check, such as an HPI check, which can reveal if there’s any outstanding finance on the vehicle. These checks also flag if the car has been reported as stolen, written off, or has had significant previous accidents.
2. Request proof of the finance settlement
If the seller claims the car has outstanding finance, ask for proof that they are in the process of settling it. You can contact the finance company directly to confirm the status of the loan. If you’re buying from a dealership, they should be able to provide this information. If buying privately, make sure you get written confirmation that the finance will be cleared upon purchase.
3. Ensure you’re protected
When buying a car, ensure that the purchase agreement states that the car is free from any financial claims. If you’re unsure, seek advice from a solicitor or a motoring expert to make sure your rights are protected in the event that something goes wrong.
4. Make payment via secure methods
Never pay for a car in cash, as it will be difficult to prove the transaction in case of a dispute. Instead, use a bank transfer or a payment method that leaves a paper trail. This way, if something happens after the sale, you have proof of payment.
Closing notes
Buying a car with outstanding finance can be a risky venture, but with the right precautions, you can protect yourself from potential issues. Always ensure you perform thorough checks, request documentation, and confirm the settlement of any finance before proceeding.
If you’re purchasing from a dealership, ensure they clear the finance before handing over the keys. By being vigilant, you can avoid the complications of buying a car with outstanding finance and ensure that your purchase is legitimate and secure.
