What Is Outstanding Car Finance?

Outstanding car finance is the money still owed on a vehicle being bought in instalments, usually on a personal contract purchase (PCP) or hire purchase (HP) contract. If the contract is still being paid off, the person paying for and driving the car isn’t the owner. They are the car’s ‘keeper’ and the finance company is the owner.

It’s not illegal to buy a car with outstanding finance, though it’s illegal to sell one without informing the buyer. But if you become the car’s keeper, you could inherit any debt that comes with it. That means you could become responsible for paying off the outstanding finance.

To avoid any problems arising from outstanding finance on a car you’ve bought, you need to see evidence the finance has been paid off before you buy it. The seller might be able to provide this. If not, you can always do a full vehicle check online. Car dealerships will often settle outstanding finance agreements at point of sale. This is common practice, but you should get it in writing that they’ll pay the outstanding sum.

If you bought a car without being aware of its outstanding finance, you have ‘good title’. This means you have the right to keep it. The finance company may well contact you about the car though, and to avoid suspicion it’s a good idea to cooperate with them. Explain the situation in an email or letter, and keep copies of any correspondence.

If the finance company keeps chasing you to pay off the finance or return the vehicle, and you’re confident you have good title to the car, contact Citizens Advice, the Financial Ombudsman and possibly a solicitor. The burden of proof is on the finance company to show that you weren’t genuinely unaware of the problem.

If you really want the car, you need to get the seller to settle the debt and prove they have done so. If you’re in any doubt about whether that’s happened, walk away. If you buy a car you know has outstanding finance, the finance company can recover the vehicle or force you to pay off the debt.

Selling a car with outstanding car finance might be illegal, but with so many cars bought in instalments and the economy in flux, it does happen. Do a vehicle check and make sure you don’t get more than you bargained for when you buy a second-hand car. Looking for more information on car finance and purchasing options? Or want tips on how to buy your next car with confidence? Check out our car finance advice guides.