Outstanding finance on a used car is one of the most common legal traps in the private car market. Understanding the risk and how to protect yourself takes about five minutes and a small cost.
What outstanding finance means
When a car is bought on finance (HP, PCP or a secured loan), the finance company legally owns the vehicle until the final payment is made. The person driving and selling the car is not the legal owner. If you buy a car that still has outstanding finance and the original borrower defaults on their payments, the finance company can legally repossess the vehicle from you, even though you paid for it in good faith and did not know about the finance.
How common is this
Very. The Finance and Leasing Association reports that a significant proportion of used cars on the private market have outstanding finance. It is particularly common with relatively new, higher-value cars that were originally bought on PCP deals.
How to check
The most reliable way is through a paid vehicle history check from providers such as HPI Check, Experian AutoCheck, RAC Vehicle History Check or AA Vehicle History Check. These services search the finance databases directly and will flag any outstanding finance found against the registration number. Costs range from around £10 for a basic check to £30 for a full check including write-off status, theft records and mileage verification.
What legal protection do you have as a buyer
Under the Hire Purchase Act 1964, a private buyer who purchases a vehicle in good faith without knowing about outstanding HP finance may be protected. This is called the good faith defence. However, this protection does not apply to PCP finance or to buyers who had reason to suspect the finance existed. A finance check removes that uncertainty.
A finance check costs a fraction of the cost of losing a car. Always run one before buying privately. For a full mechanical pre-purchase inspection, call Steins Garage on 0131 554 3423 or contact us here.