It's a nightmare scenario: you've bought what you thought was a great used car, only to discover it has thousands of pounds of outstanding finance. Worse still, the finance company is now demanding you hand over the vehicle.
Can the Finance Company Take the Car?
Unfortunately, yes. Until finance is fully paid off, the finance company legally owns the vehicle. This applies even if:
- You bought the car in good faith
- You paid the seller a fair market price
- You had no idea finance existed
- The seller has disappeared
The law protects finance companies because they're the registered owners. You've essentially bought something the seller had no right to sell.
Your Legal Rights
It's not all doom and gloom. You do have some protections:
Hire Purchase Act 1964
If you bought from a private seller (not a dealer), the first private purchaser in good faith may gain "good title" to the vehicle. This is complex law and often requires legal advice.
Consumer Rights Act 2015
If you bought from a dealer, you have stronger protections. Dealers must ensure goods are theirs to sell. You can claim a refund from the dealer (though you may need to pursue this through court).
Credit Card Protection
If you paid part of the purchase on a credit card (over £100), Section 75 protection means your credit card company is jointly liable.
What Happens in Practice
Here's the typical sequence of events:
- Finance company discovers the sale – Usually when the original borrower defaults
- They trace the vehicle – Using DVLA records
- They contact you – Demanding the vehicle or payment of outstanding finance
- Negotiation or repossession – You may be given options, or they may simply collect the car
Real-World Costs
The financial impact can be devastating:
- Vehicle value – The car you paid for is gone
- Outstanding finance – Could be more than you paid
- Legal costs – If you try to pursue the seller
- Replacement transport – You still need to get around
A £5,000 car could easily cost you £10,000+ when everything is added up.
How to Avoid This Situation
Prevention is simple and cheap:
1. Run a Vehicle History Check
A comprehensive check will reveal outstanding finance before you buy. This costs around £10 and takes seconds.
Check for outstanding finance now with Green Flag.
2. Ask the Right Questions
Ask the seller directly: "Is there any finance on this car?" Get the answer in writing if possible.
3. Be Wary of Warning Signs
- Seller doesn't have the V5C logbook
- Price significantly below market value
- Seller is rushing the sale
- Seller wants cash only with no paper trail
4. Pay Safely
If possible, pay via bank transfer (for a record) and ensure you have the seller's full details. Consider paying part on credit card for Section 75 protection.
What If It's Already Happened?
If you've already bought a car with finance:
- Don't panic – But do act quickly
- Contact the seller – They may settle the finance
- Negotiate with the finance company – Explain you're an innocent purchaser
- Seek legal advice – Citizens Advice or a solicitor can help
- Report to the police – If you believe fraud was involved
The £10 That Could Save You Thousands
A vehicle history check is the simplest way to protect yourself. For less than £10, you can verify there's no finance on any used car before you buy.
Don't learn this lesson the hard way. Check any car for finance now.
