Safe Car Check
Roughly nine in ten new cars in the UK are bought on some form of finance, and most used cars under five years old are still inside an agreement when they are first sold on. That is not a problem when it is handled properly. It becomes one when the seller pockets your money and keeps paying the finance, or stops paying it altogether.
Who actually owns a financed car
It depends on the type of agreement, and the V5C logbook will not tell you. The V5C names the registered keeper, which is not the same thing as the owner.
| Agreement | Who owns the car during the agreement | Can the keeper sell it? |
|---|---|---|
| Hire purchase (HP) | The finance company, until the final payment. | No, not without settling. |
| Personal contract purchase (PCP) | The finance company, until the final balloon payment is made. | No, not without settling. |
| Conditional sale | The finance company, until the last payment. | No, not without settling. |
| Lease / contract hire / PCH | The leasing company, always. The keeper never owns it. | Never. |
| Personal loan | The borrower. The loan is not secured on the car. | Yes. |
What happens if you buy one
If the seller stops paying, the finance company will trace the car and ask for it back. They are entitled to, because it is theirs. You then have to argue your case with the lender, and if that fails, chase the seller for your money, which in practice means a county court claim against someone who has already shown they will take money for a car they did not own.
There is one important protection. Under Part III of the Hire Purchase Act 1964, a private individual who buys a car on HP or conditional sale in good faith, without knowing about the finance, generally gets good title to it. The lender's claim is against the seller instead. That protection has three gaps:
- It does not cover trade buyers such as dealers.
- It does not cover lease or contract hire cars, because those were never going to belong to the keeper.
- It only protects a buyer who acted in good faith without notice of the finance. If a history check showed finance and you bought anyway, you will struggle to claim you did not know.
The sensible reading is: run the check, and if it shows finance, deal with it before money changes hands rather than relying on the Act afterwards.
How to buy a financed car safely
- Run a finance check first. It shows the lender, the type of agreement and the start date. If the seller said there was no finance, you now know how honest they are.
- Ask for a settlement letter. The seller requests this from their lender. It states the exact figure to clear the agreement, valid for a set number of days.
- Pay the lender directly for the settlement amount and the seller for the balance, or sit with the seller while they settle by phone or online, and get the lender's written confirmation before you drive away.
- Re-run the check a few days later. Lenders usually update the databases within a week. A second check confirms the car is clear before you rely on it.
- Keep everything. Settlement letter, confirmation, receipt and the report. If a dispute ever arises, that paperwork is your title.
Warning signs
- The seller is "not sure" whether there is finance on a car under four years old.
- The V5C shows the current keeper has had the car only a few months.
- The seller wants cash and a quick sale, or refuses to provide a settlement letter.
- The price is well below similar cars, with no clear reason.
If you have already bought it
Contact the lender as soon as you find out, in writing, explaining when and how you bought the car and that you had no knowledge of the finance. Send them your receipt and any adverts or messages. If they still pursue the car, get legal advice; Citizens Advice can help you understand your position and any claim against the seller. Do not sell the car on; that would pass the problem to someone else and remove any protection you had.
