Outstanding finance on a used car: checks and your rights
A car on hire purchase or PCP can belong to the lender until it is paid off. How to check before you buy, and the protection private buyers have under the 1964 Act.
Updated
If a car still has finance on it, the seller may not own it. With hire purchase, and with most PCP deals, the lender owns the car until the agreement is paid off. Check for finance before you pay, with a vehicle history check. If finance shows, only buy once the seller has settled it and you have the settlement letter. If you bought a car in good faith and finance turns up later, the Hire Purchase Act 1964 may protect you as a private buyer, but not in every case.
The V5C logbook will not warn you. It names the registered keeper, and a keeper with finance on the car is still the registered keeper.
Why finance can stop a sale
How a car was paid for decides who owns it.
| Type of finance | Who owns the car while it is being paid for |
|---|---|
| Hire purchase (HP) | The lender, until the last payment |
| PCP | Usually the lender, until the optional final payment |
| Conditional sale | The lender, until the conditions are met |
| Personal contract hire (lease) | The leasing company, always |
| Personal loan | The buyer. The loan is not secured on the car |
| Logbook loan | The borrower, but the lender holds a bill of sale over the car |
Most PCP deals are set up as hire purchase or conditional sale agreements. That is why a keeper who is still paying cannot sell the car without settling first. If they do, the lender can claim the car back from whoever has it.
How to check before you buy
- Run a vehicle history check before you hand over any money. Outstanding finance is one of the things it covers, and GOV.UK services do not show it. Our guide on how to check a car's history explains what each check covers.
- Ask the seller directly whether there is any finance on the car. Write the question and the answer in a message, so you have a record.
- Ask for proof of ownership. The original purchase invoice, or a settlement letter if the car was bought on finance. Our guide to registered keeper vs owner explains why the logbook is not enough.
- Pay by a traceable method to the person named on the paperwork, not to a third party.
If the check shows finance, it is not automatically a reason to walk away. Many cars are sold with finance outstanding and settled on the day. What matters is that it is settled before the car becomes yours.
How a seller settles finance before the sale
The seller asks the lender for a settlement figure. Under the Consumer Credit Act 1974 a borrower can ask in writing for a statement of the amount needed to pay off a regulated agreement early, and the lender must provide it. Then:
- The simplest way is for the seller to settle in full and give you the settlement letter before you pay.
- If the seller cannot settle first, pay the settlement amount to the lender directly, using the details on the lender's letter, and pay the seller only the balance. Ask the lender to confirm in writing that the agreement is settled.
- A dealer taking a part-exchange settles the finance as part of the deal. If you are part-exchanging, ask for this in writing.
Never pay the full price to the seller and trust them to pay the lender. Never use bank details for the "lender" that the seller sends you. Find the lender's contact details yourself.
The Hire Purchase Act 1964: protection for private buyers
Part III of the Hire Purchase Act 1964 protects some buyers of motor vehicles that were on hire purchase or conditional sale. Under section 27, a private purchaser who buys the car in good faith without notice of the agreement gets good title, as if the lender's ownership had passed to the seller first. In plain terms, you keep the car and the lender has to pursue the person who took out the finance.
The protection has limits:
- It covers private purchasers, not the trade. Section 27 gives no protection to a trade or finance purchaser, such as a motor dealer. If a dealer bought a car with finance on it and then sold it to you, you can still be protected as the first private purchaser.
- Good faith without notice. If you knew about the finance, you are not protected. A history check that showed finance, which you then ignored, is a problem.
- It covers hire purchase and conditional sale only. It does not cover a leased car, which the keeper never had a right to buy, and it does not cover a logbook loan secured by a bill of sale.
- It does not cover a stolen car. If the car was stolen, different rules apply. See stolen car checks.
The lender may ask you to show you bought in good faith. Keep the advert, your messages with the seller, the receipt and the record of your payment.
If you find finance after you have bought the car
Do not panic, and do not hand the car over just because someone asks.
- Ask the lender to put its claim in writing, including the agreement it says the car belongs to.
- Reply in writing with how and when you bought the car, and the evidence that you bought it in good faith. If you are a private buyer and the car was on hire purchase or conditional sale, say that you rely on section 27 of the Hire Purchase Act 1964.
- Get advice before you agree to anything. Citizens Advice can help, and so can a solicitor.
- If you bought from a dealer, contact the dealer. Under the Consumer Rights Act 2015, a trader selling goods must have the right to sell them. A dealer who sold you a car it could not give you title to should put it right.
- If the seller lied to you, report it to the police. In England, Wales and Northern Ireland, fraud is reported to Report Fraud. Our guide to used car scams has the routes.
Logbook loans
A logbook loan is a loan secured on a car the borrower already owns, using a bill of sale. The bill of sale gives the lender rights over the car until the loan is repaid, even though the borrower keeps driving it. A buyer of a car with a logbook loan on it does not get the section 27 protection, so the lender may be able to take the car. A vehicle history check may show it as finance. If the seller will not settle it in front of you, walk away.
Frequently asked questions
Can I buy a car with outstanding finance?
Yes, if the finance is settled as part of the sale. Get the settlement figure from the lender, make sure the lender is paid, and get the settlement letter before the car is yours.
Who owns a car on PCP?
Usually the lender, until the borrower makes the optional final payment. Most PCP deals are set up as hire purchase or conditional sale agreements.
Can the finance company take the car from me?
If you are a private buyer who bought in good faith without knowing about a hire purchase or conditional sale agreement, section 27 of the Hire Purchase Act 1964 usually gives you good title. It does not help if you knew, if you bought as a trader, or if the loan was a logbook loan.
Does the V5C show if a car has finance?
No. The V5C names the registered keeper, who may not be the owner. A vehicle history check is the way to see recorded finance.