Most new and used cars are purchased using some kind of finance agreement, but it’s very common for owners to want or need to change their car before the finance has been paid off. This can be tricky, but we’ve got some key tips to help you out.
If you want to sell or part-exchange your car while it is still under a finance agreement, you first need to know what type of agreement it is.
The majority of new or used car finance agreements are either a hire purchase (HP) or personal contract purchase (PCP) agreement. These are called secured loans, which means that the car is secured against the finance – much like a mortgage on a house. That means that until the car’s finance is paid off, it’s not really yours to sell. However, as we’ll explain, there are some other options.
If you bought your car with a bank or credit card loan, this is called an unsecured loan, meaning that the bank does not have an interest in the car. You are the legal owner of the car in clear title and can sell it on as you wish.
If you are buying a used car and want to check if it’s currently on a finance agreement (for which you don’t want to become liable), finance companies use agencies to register their interest in vehicles that are the subject of a finance agreement.
Most vehicle history check companies will tell you if finance has been secured on the vehicle and if it still needs to be paid. If finance is recorded, you will be able to find out which company it is with, when it was taken out, how long for and what type of finance it is. Some of these services are free, while others will require a small fee (less than £20).
The checks can also include whether it has been involved in an accident, its true mileage or if it has been an insurance write-off. Used car dealers usually advertise if they have carried out one of these checks, but ask for a copy of the check, or keep a copy of the advert stating this when you buy.
So let’s look at the types of finance products, and the implications for selling your car, in more detail.
Unsecured loans – bank loan or credit card
Let’s get this one out of the way first, as it’s quite simple.
If you borrowed the money to buy your car on a personal loan from a bank or building society, that’s called an unsecured loan. The bank has lent you a sum of money, and you have used that money to go and buy a car. The loan is not secured against the car, so you can sell it as you like.
Likewise, if you’ve used a credit card to pay for your car, that’s also unsecured and you can sell the car as you wish.
However, you’ll still have to keep up your monthly loan or card payments until the debt is cleared. Obviously, you can use the money you’ve got from selling the car to put towards this, or you can continue paying it off each month as before. If you’ve used a credit card, the interest rates are usually quite high so settling as early as possible could save you thousands of pounds in interest.
Secured car finance
Unlike a personal loan, car finance agreements (usually HP or PCP) are secured against the car, which means the finance company retains a financial interest in the vehicle until the last penny has paid off – and means you can’t sell it without their agreement. Once the loan is fully repaid, it’s your car and you can do what you like with it.
Under a hire purchase (HP) agreement, you pay off the loan in equal monthly instalments. When all payments have been made, the HP agreement ends and you own the car. Even if you’ve repaid £29,990 of a £30,000 loan, you can’t sell it as the finance company retains a financial interest that effectively blocks you from selling it.
The personal contract purchase (PCP) is the most popular form of car finance, and it’s a specific form of HP. You pay a smaller monthly fee for the same car compared to an HP because part of the amount borrowed is deferred – this is usually known as the ‘balloon’. At the end of the agreement, you choose whether to pay this deferred ‘balloon’ amount to finally own the car, or hand it back to the finance company, or part-exchange it on another car. We have lots of specific information on PCP finance so we won’t go into more detail here.
Since it is a form of HP, a PCP is also secured against the car. The finance company remains the owner until the end of the term unless you pay the final balloon payment to own the car, or you hand it back.
If you want to sell the car, you need to pay off the outstanding balance or sell it to a recognised trade buyer who will pay it off as part of the sale.
Settling an HP or PCP agreement early
You can add up your remaining payments to work out roughly how much you still owe, but it’s not a precise number. A settlement figure will be a different total because you may get a reduction of interest and charges. Whether you can settle or not depends on the agreement.
The finance company should be able to provide you with a formal settlement figure for an HP or PCP agreement in writing. This doesn’t oblige you to settle once you get the reply letter. The settlement figure will only be valid for a couple of weeks, because it changes with every monthy payment you make. A settlement letter will be essential if a dealer offers to settle your car’s finance for you, as will a letter proving you have settled and the ownership of the car has passed to you.
If you’re looking to change cars while a finance agreement is still running, voluntary termination is not likely to apply here. This is a legal right to end your finance agreement early, set at 50% of the total amount payable including interest and fees. It can be complicated to understand – see our complete guide here.
Settling a PCP early works in much the same way as an HP, but it includes the balloon payment which has been deferred until the end of the term. The same principle applies – the finance company can provide you with your current settlement figure, which changes every month as you make your regular payments. Voluntary termination also applies to PCPs, although it is generally nowhere near as helpful as with a regular HP, and we explain the options on ending a PCP early here.
Having a dealer settle a finance agreement for you
Most car dealers will settle the finance for you to take your car as part exchange. The settlement figure is then subtracted from the value of your car. So if your car is worth £12K but you still owe the finance company £10K, you’ll get the remaining £2K to put towards your next car.
If the settlement figure is higher than the car’s value, you will need to pay the difference. To reverse the position above, if your car is worth £10K but you still owe the finance company £12K, you’ll need to find an additional £2K to settle the outstanding finance.
Some finance companies will allow you to add that additional money onto your next car finance agreement – this is called negative equity and is best avoided if possible, as all you’re doing is making a bigger problem down the line.
The dealer will work with you to agree the value of the settlement (but it is still useful for you to have obtained your settlement letter) and what extra you’ll need to contribute. There is, of course, an incentive for that dealer to get you to take out a new finance agreement.
Car-buying services (we’ve listed the best here) will arrange for a dealer to buy your car and settle any finance, so that’s another avenue worth exploring – often, you may get a better deal than by part-exchanging it.
One thing you generally can’t do is sell your car privately if it has outstanding finance. Some finance companies may allow it if the buyer pays them directly before taking your car, but most will simply say no.
Additional reporting by Russell Hayes. This article was originally published in January 2022, and was last updated in January 2026.
