How To Avoid Buying a Car With Outstanding Finance

Written by Danny Collins
Last updated: June 13, 2023

Did you know that in the UK alone it’s estimated that almost 90% of all new car deals are bought using some type of finance? That means that 9 out of 10 cars you see running around your town have an outstanding loan attached to them.

Now that’s not a problem in itself. However, if your seller isn’t upfront and honest with you about any debt on that car they’re trying to shift onto you, you might be in for a nasty surprise when the finance company comes knocking at your door for several missed monthly payments.

What is Outstanding Car Finance?

Outstanding car finance occurs when the previous owner sells on a car but there is still finance left to be paid. By not communicating the fact that there is finance left to be paid, they are in effect committing a fraudulent act.

Buying a Car on Finance

If you find yourself in the unfortunate position where you’ve bought a used car that still has a balance owing to the lender, then you have a couple of options.

You could try and argue your case with the lender, given that you unwittingly purchased the vehicle without having been provided with this information. Depending on the route via which you even acquired the vehicle, it might even be the case that your seller was also mis-sold the vehicle by the original seller!

Although, honestly, a quick car check is all you need to carry out to discover this and so much more valuable information about any used car you’re looking to invest in. Not just regarding the finance situation but also if it’s ever been stolen or involved in a major accident that again the seller has clearly communicated to you.

By carrying out an outstanding finance check, you’ll save yourself not only a lot of effort and stress but also money in the long run too.

With that in mind, what other top tips do we have up our sleeves for you today to help you avoid buying a car with outstanding finance?

Understanding Hire Purchase and Personal Contract Purchase:

To make informed decisions and avoid buying a car with outstanding finance, it’s essential to understand the two common financing methods: hire purchase (HP) and personal contract purchase (PCP).

Hire Purchase (HP) is a financing option where you make monthly payments over a fixed period to eventually own the car. During the repayment period, the finance company retains ownership of the vehicle. It’s crucial to check if the car you intend to purchase is under an HP agreement by conducting a thorough background check, including contacting the finance company directly.

On the other hand, Personal Contract Purchase (PCP) is another popular financing option. PCP allows you to pay lower monthly instalments by deferring a significant portion of the car’s value to the end of the agreement. It offers flexibility, giving you the option to either return the car, pay the remaining amount to own it or trade it in for a new vehicle. When considering buying a used car under PCP, it is crucial to verify if the previous owner has settled all the financial obligations.

The Risks of Buying a Car with Outstanding Finance

Buying a car with outstanding finance can lead to significant issues for the new owner. Here are some risks associated with such a purchase:

1) Legal Ownership Issues

If you unknowingly buy a car with outstanding finance, the finance company holds legal ownership of the vehicle. This means they can reclaim it, leaving you without a car and losing the money you paid for it.

2) Financial Liability

Purchasing a car with outstanding finance can result in you becoming financially liable for the previous owner’s debts. This includes any missed payments, penalties, or charges that have accumulated under the finance agreement.

3) Difficulty in Selling or Trading

If you decide to sell or trade a car in the future, having outstanding finance can create hurdles. Prospective buyers or dealerships may be reluctant to engage in a transaction involving a vehicle with unresolved financial obligations.

Tips for Safely Buying a Used Car

To protect yourself from the risks associated with buying a car with outstanding finance, consider the following tips when purchasing a used vehicle:

1) Conduct a Vehicle History Check

Obtain the vehicle’s registration number and perform a comprehensive vehicle history check. This check will reveal important information such as outstanding finance, mileage discrepancies, previous accidents, and more. Several online platforms offer such services for a nominal fee.

2) Verify Ownership Documents

Before finalising the purchase, carefully examine the car’s ownership documents, including the logbook (V5C) and service history. Ensure the seller’s details match the documents and look for any signs of tampering or inconsistency.

3) Contact the Finance Company

If you suspect a vehicle may have outstanding finance, reach out to the finance company directly. Provide them with the car’s details and request a clearance letter or confirmation of settlement. This step ensures that all financial obligations have been met before making the purchase.

4) Seek Professional Inspection

Consider hiring a qualified mechanic or an independent vehicle inspector to thoroughly assess the car’s condition. They can identify any mechanical issues or signs of previous accidents that might not be apparent during a regular test drive.

5) Purchase from Reputable Sources

Opt for buying from reputable dealerships or established sellers. They often have rigorous pre-purchase inspections in place and may offer warranties or guarantees, providing you with additional peace of mind.

6) Be Wary of “Too Good to Be True” Deals

If a deal seems too good to be true, exercise caution. Unusually low prices or sellers pressuring you for a quick sale could be red flags indicating potential problems, including outstanding finance.

Our Top Tips to Avoid Buying a Used Car With Outstanding Finance

We already mentioned above but by far and away the most sensible option is to run a vehicle registration check. It’s simple and easy to do and will quickly reveal whether the car you want to buy has any outstanding finance on it.

With a comprehensive car check, you get a detailed report that not only highlights any outstanding finance, but also provides a full vehicle history, including details about the MOT history and mileage. These are all areas where unscrupulous sellers can go to great lengths to hide vital information in order to pass off their vehicle as being something it’s not!

A car registration check provides valuable peace of mind that will save you money and stress down the line when you unexpectedly get hit up for missing repayments. There could be hundreds but possibly even thousands of pounds still left in outstanding debt that requires settling.

Before buying the car, if you do discover that there is outstanding finance, you have an opportunity to ask the owner to settle their account with the lender before you go ahead and complete the purchase. It makes so much more financial sense to check before, not after you’ve agreed to the final purchase.

Is There a Way to Spot a Car WIth Outstanding Finance?

Good question! And the short answer is no! Not unless you carry out a car check that is.

Why would you run the risk of picking up someone else’s debt when it’s easy and efficient to verify if a motor is finance free simply by going online?

With access to an accurate report, you’ll be highlighted immediately to any vehicle finance that still requires repaying.

While you would expect a seller to always be up front and honest and verify with you first that their car is free of debt, sadly that’s not always the case. And while you might have had the wool pulled over your eyes, as far as the finance company is concerned, once you become the registered owner of the vehicle, you assume responsibility.

Why would you want to be accountable for someone else’s finance? Whether you’re a dealer or a private buyer, a simple used car online check will highlight a host of potential issues saving you the nightmare of being mis-sold and mis-informed. The more detail you have, the better so if you do want to avoid buying a car with outstanding finance, go ahead and carry out a car check.