Finding out that a car you've just bought still has outstanding finance is worrying. The good news is that UK law gives private buyers real protection in many cases. Here's how it works and what to do.
Why finance matters
With hire purchase (HP) and most other car finance, the finance company owns the car until the agreement is paid off. The person paying the finance doesn't own it, so they shouldn't sell it until it's settled.
How private buyers are protected
Under Part III of the Hire Purchase Act 1964, if you are a private buyer and you bought the car in good faith, without knowing about the finance agreement, you generally become the owner. The finance company then has to recover its money from the person who sold the car while it was still under finance, not from you.
This protection has limits:
- You must be a private buyer. Motor traders and finance companies don't get it.
- You must not have known about the finance. If you were told, or the evidence shows you knew, you're not protected.
- It covers hire purchase and conditional sale agreements. It doesn't cover a car that was leased (for example on a personal contract hire), because the seller never had any right to it.
- Logbook loans are different. A car used as security for a logbook loan (a bill of sale) isn't covered in the same way, and the lender may try to take it.
What to do now
- Don't ignore letters from the finance company. Reply in writing.
- Explain that you're a private buyer who bought in good faith, and send your evidence: the receipt, payment record, the advert and any messages with the seller.
- If you checked the car before buying, include the check result showing no finance at the time.
- Get advice from Citizens Advice. If you bought from a dealer, the dealer is responsible for giving you clear title, and you have strong rights under consumer law.
Avoid it in the first place
An outstanding finance check on the day you pay shows any finance agreement recorded against the car, with the finance company and date. Our finance check guide explains the results, and how to pay safely shows what to get in writing.
Key points
- Private buyers in good faith are generally protected for cars on hire purchase or conditional sale.
- Leased cars and logbook loans are different and riskier.
- Keep your receipt and evidence, reply to the finance company and get advice.
Before you buy, a vehicle finance check is the quickest way to avoid this situation. If you want to check finance on a car you are viewing, our outstanding finance check shows whether a hire purchase, PCP or logbook loan agreement is recorded against the registration, and which lender to contact.