Can I change my car with outstanding finance?

Alisa Dan

18 February 2025

Can I change my car with outstanding finance?

Looking to switch your financed car for a different model? You have several options available, though the process requires careful planning. Understanding how car finance works and the steps involved in changing vehicles will help you make an informed decision.

Understanding Outstanding Finance

What is outstanding finance on a car?

When you buy a car through finance, the remaining balance you need to pay is called outstanding finance. This includes both the original loan amount and any interest charges, minus the payments you've already made. Until you complete all payments, the finance company legally owns the vehicle.

Different finance agreements come with varying terms and conditions. Common types include Personal Contract Purchase (PCP), where you have the option to buy the car at the end of the term, and Hire Purchase (HP), where you'll own the vehicle after making all payments.

The settlement figure - the amount needed to clear your finance early - often includes additional fees and charges. Getting this figure from your finance company is your first step when considering a vehicle change.

Risks of buying a car with outstanding finance

Purchasing a car that still has finance owing on it carries serious risks. Since the finance company remains the legal owner, they could repossess the vehicle if the previous owner stops making payments - even after you've bought it.

To protect yourself, always run a vehicle history check before buying. This check will reveal:

• Whether any finance is still owed on the car
• The identity of the legal owner
• Any risk of repossession
• The vehicle's complete finance history
• Details of any payment defaults

Most reputable dealerships handle outstanding finance as part of the sale process. However, private sales require extra caution - always insist on seeing proof that any existing finance has been settled.

Legal implications of owning a car with outstanding finance

The law is clear about vehicle ownership under finance agreements. The finance company holds legal title until you've paid off the loan completely. This affects what you can do with the car - from selling it to making modifications or taking it abroad for extended periods.

Selling a car without disclosing outstanding finance is illegal and can result in criminal charges. The law requires you to be transparent about any existing finance agreements. The finance company must give written permission before you can transfer ownership to someone else.

Keep all documentation organized when dealing with financed vehicles. You'll need settlement letters, payment records, and transfer agreements to protect yourself and ensure a clean legal transfer.

Options for Changing Your Car

Can I swap my financed car for a cheaper one?

Switching to a less expensive car while under finance is possible, though it requires careful financial planning. Most finance companies allow this change, provided you address the outstanding balance properly.

Before making the switch, consider these key factors:

• Current market value of your car
• Remaining finance balance
• Early settlement charges
• Price of the new vehicle
• Terms of your current agreement

Many dealerships specialize in helping customers switch to more affordable vehicles. They can often incorporate any negative equity - where you owe more than the car is worth - into a new finance agreement for the cheaper car.

Can I downgrade my car on finance?

Downgrading to a less expensive model offers a practical way to reduce your monthly payments. The process starts with getting a settlement figure from your current finance company and a valuation of your car.

Your credit history and payment record play a crucial role in approval for a vehicle downgrade. Finance companies look at your payment history to assess the risk of a new agreement.

The downgrade process typically involves:

1. Getting your current car valued
2. Obtaining a settlement figure
3. Finding a suitable cheaper vehicle
4. Negotiating the new finance terms
5. Completing the transfer paperwork

Can I transfer my car loan to another car?

Direct loan transfers between vehicles are rare - most finance companies prefer to set up a new agreement. This keeps the paperwork clean and allows them to adjust terms based on the new vehicle's value.

If you're considering switching cars, start by talking to your current finance provider. Some offer loyalty benefits or simplified processes for existing customers looking to change vehicles.

Many dealers now offer online valuation tools and finance calculators to help you understand the costs involved. This lets you work out potential monthly payments before visiting the showroom.

Can I sell my car and keep paying the finance?

Continuing payments on a car you've sold violates most finance agreements. The finance company maintains legal ownership until the loan is cleared, making independent sales problematic without their involvement.

Always contact your finance company before attempting to sell. They'll explain your options and the correct process to follow. Most require the loan to be settled in full when the car is sold.

The proper selling process includes:

• Getting written permission from the finance company
• Obtaining an up-to-date settlement figure
• Arranging secure payment transfer
• Completing ownership paperwork
• Receiving confirmation of agreement termination

Steps to Take When Changing Cars

Changing cars under finance requires careful planning and attention to detail. Start by gathering all your current finance documentation and understanding exactly how much you owe.

Following these steps helps ensure a smooth transition:

1. Contact your finance company for a settlement figure
2. Get your current car professionally valued
3. Research potential replacement vehicles
4. Compare finance options from different providers
5. Prepare all required documentation

Keep records of all communications with finance companies and dealers. Take photos of your current vehicle's condition when preparing to hand it back. This documentation protects you if questions arise later about the transfer process.

Professional advice from financial advisors or car finance specialists can help navigate complex situations. They can explain options you might not know about and help avoid costly mistakes in the transfer process.