Taxes and finances when selling your car
Tax and selling your car
You can no longer transfer road tax when selling your car. Sellers must apply for a refund, and buyers must tax the car themselves at point of sale.
Take note - if you sell then buy a car early in the month, you could pay tax twice. DVLA vehicle tax is now backdated to the beginning of the month and refunds offered from the start of next. You can apply for a Statutory Off Road Notification (SORN) before the month's end to avoid paying tax on the car you wish to sell, but this will mean you cannot legally drive or test drive the vehicle.
How to cancel car tax
"Quite simply, you have to inform the DVLA that your car has been sold, scrapped, stolen, exported, taken off the road, written off by an insurance company, or become exempt from road tax. You can tell the DVLA via their site.
Even if you complete the relevant documents with a pen when disposing of a car, it is essential to register online. You will get a refund for any full months remaining." - James Ruppert
Selling your car - DVLA do's
- Immediately notify the DVLA when you have sold your car - you could face a hefty fine and be prosecuted, otherwise.
- Upon selling your car, fill out the V5C (log book) and V5C/2 subsection with the buyer and give the V5C/2 to the buyer as proof of purchase.
- Post the completed V5C to the DVLA to tell them about the car's change of ownership. Instead of posting the completed V5C, you can now submit details to the DVLA online. The government operates this vehicle registration service from 7am-7pm. To inform the DVLA of the change of ownership, the completed V5C must only be posted or detailed online - do not do both.
Finance and selling your car
There are four main types of car finance:
- Personal bank loans
- Hire Purchase (HP)
- Personal Contract Purchase (PCP)
- Personal Contract Hire (PCH)
For more information on each, look at the ‘Car Finance Explained' section of our Car Finance Calculator tool.
How to sell a car when you have a loan
If you bought a car with a personal bank loan, you can sell the vehicle whenever you want, as you are the legal owner of the car. However, you will still be liable for the loan and will have to continue paying it back.
Is it illegal to sell a car on finance
With the exception of personal bank loans, yes, it is illegal to sell a car with outstanding finance because the finance company is technically the vehicle's legal owner. Doing so can result in you being charged with fraud. Also, if the buyer has their new car repossessed by the finance company, they may choose to sue you to recover costs.
How to sell a car with outstanding finance
To legally sell a car with outstanding finance, you must first:
- Inform the finance company and ask for the ‘settlement figure' needed to pay your loan off in full
- You must then pay the entire settlement figure, plus any administration fees and any early repayment fees
Can I Part Exchange my car with oustanding finance?
"You can still trade in your car with outstanding finance, such as PCP (Personal Contract Purchase) or HP (Hire Purchase), but you'll need to ask the finance company for the "settlement figure" - the amount they need from you to pay off your loan in full. However, it may also be subject to early repayment and administration fees.
Until the finance is settled, the car is still owned by the finance company, so it's not yours to sell. It is illegal to knowingly sell someone a car with outstanding finance without informing them of the situation. Most buyers and many dealers carry out a car history or data check to make sure there's no finance outstanding on a car." - Gareth Herincx
Some dealerships are willing to take on the outstanding finance in a part exchange. In other words, the dealer would clear the existing settlement figure for you through the part exchange sale of your car. This point will depend on how much is left to repay in the settlement figure and the value of your vehicle.
If your car finance settlement figure costs more than your vehicle is worth, this is called negative equity. Some dealerships will not part exchange a vehicle if you are in negative equity. Others will, but the negative equity will be added on top of the car you wish to purchase. In the long run, you will pay a lot more back. You could end up with even greater negative equity if you want, or need, to sell the new car.
Companies that buy cars with oustanding finance
Some companies like Motorway will offer to buy cars with outstanding finance. Typically, such companies will purchase your car and pay the outstanding finance costs. You will obviously not receive as much money for the sale, as some fees will go towards repayment of the settlement figure. Again, you should still notify the finance company prior to the vehicle's sale and ask for the settlement figure.