What do I do if I’ve bought a car with outstanding finance?

Buying a new car should be one of life's most exciting moments, but what happens when your dream wheels come with the extra unwanted baggage of outstanding finance?
 
It’s one of those hidden issues that won’t come up when you’re looking over the bodywork or taking a test drive but taking home a car with finance owing could be a painful – and costly – mistake.
 
The good news is that firstly it’s very rare and secondly there are checks you can carry out (for free) to protect yourself.
 
Read on to find out how to avoid buying a car with outstanding finance and what to do if you already have. 

What are the risks of buying a car with outstanding finance?

When it comes to buying a car with outstanding finance, the risks always outweigh the rewards.
 
Sure, you might get to have your dream wheels parked up on your driveway, but if there’s still finance owed, they might not stay there for long!
 
If you’re found to have bought a car that technically belongs to someone else (don’t worry, we’ll explain all the legal stuff in the next section) then you might be at risk of having it repossessed or being required to pay the remaining finance – even though the original loan wasn’t in your name.

What are the legal implications of owning a car with outstanding finance?

Bear with us while we don our barrister’s wig; now, let’s talk legalities.
 
The issue with outstanding finance is that it affects who legally owns the vehicle.
 
Both Hire Purchase (HP) and Personal Contract Purchase (PCP) finance loans are secured against the car. During the loan term, the lender will remain the car’s legal owner. In fact, ownership won’t transfer to the registered keeper until all the loan payments have been made (including the balloon payment in a PCP).
 
That’s why it’s against the law to sell a car with outstanding finance - it’s still legally the lender’s property.
 
On the other hand, the law might be on your side if you’ve bought a car with outstanding finance unknowingly. This is known as having ‘good title’ and you’ll need to prove you bought it in good faith, without knowledge of the finance agreement.

What steps should you take if you've discovered outstanding finance?

Step one; don’t panic.
 
We know that’s probably easier said than done, but if you’ve genuinely discovered a used car has outstanding finance after buying it in good faith, you might even get to keep your new pride and joy.
 
It’s a cliché for a reason: honesty is always the best policy. Speak to the lender and don’t ignore any communications you receive from them. It’s also a good idea to keep copies of any letters or emails exchanged for your records.
 
What happens next will depend on who sold you the car and whether you’re protected by ‘good title’. If the lender investigates and finds that you didn’t know anything about the car’s finance history, you might be able to keep the car while they pursue the person who signed for the loan to get their missing funds.
 
If they ask for you to repay the outstanding balance, think carefully before transferring any money. You’re under no obligation to do this and it could make your overall purchase a lot more expensive than you expected.
 
In the worst-case scenario, if the lender proves you did know that the car had outstanding finance and the original borrower refuses to pay the balance, your wheels might be repossessed.

How can you protect yourself from future scams?

Knowledge is power (yes, that’s cliché number two if you’re keeping count). The more you can find out about a used car before you buy, the better.
 
It’s also important to build your own evidence file just in case you need to argue your case. Keep hold of your proof of purchase, the original advert, and any messages you’ve exchanged with the seller.  
 
However, one of the best ways to protect yourself is to run an online check into the car’s history before you buy.
 
These checks – known as HPI checks – will let you know whether there’s any outstanding finance as well as further information about the car like the number of previous owners, MOT history, and whether it’s been an insurance write-off in the past.
 
Here at Carmoola, we offer free HPI checks to anyone who downloads our app, submits a handful of details and requests a budget with us. That’s right; we’ll help you get complete peace of mind, and it won’t cost you a penny!

Should you seek legal advice?

Yes, we’re getting the wig out again.
 
Assuming you have ‘good title’, you shouldn’t face any legal action.
 
However, if you do find that the lender is asking you to pay for finance that you never agreed to take out in the first place, it might be worth seeking legal advice or free help from an independent service like Citizens’ Advice.
 
It’s also worth keeping in mind that you could also submit a complaint direct to the lender or the Financial Ombudsman if you do have a complaint about how the lender has conducted themselves throughout this process.