Outstanding Car Finance

Vehicle information expert, HPI, reports finance related issues were one of the biggest cause for claims against the HPI Guarantee in 2009. Whilst finance fraud by true car criminals is believed to be on the decline, the tough economic climate means used car buyers are at increased risk from the threat of innocent fraudsters. Increasing numbers of people are selling their vehicle before they have paid off the outstanding finance, leaving buyers at risk of losing their cash and the car. HPI warns buyers to watch out for finance fraud before purchasing a vehicle.

“As finances are squeezed, many people use the money raised from the sale of a car to address more pressing, short term, financial pressures than the car’s finance agreement itself,” explains Nicola Johnson, Consumer Services Manager for HPI. “However, selling on a car that has outstanding finance will mean the car’s title remains with the finance company and therefore, legally, the vehicle remains their property. Consumers must recognise that used car sellers don’t have to be hardened criminals to represent a risk.”

HPI believes there are thousands of UK motorists driving cars with the misconception they legitimately own them. Many of these people are unlikely to ever discover the truth as the finance agreement is eventually paid off by the vendor. However, as seen by HPI, many do fall foul of the “innocent fraudster”. They only realise the true situation when they either try to sell on the vehicle to someone who conducts a history check which reveals the facts, or they write off the vehicle in an accident.  An insurance company is duty bound to pay the finance company who technically still owns the car, not the person who had the accident in the car, who believes they own it.

Paul Harrison, Head of Motor Finance at the FLA, adds, “A third of motor fraud cases involve customers selling their car without settling their finance agreement in full. This is known as conversion fraud and it has become a bigger problem during the recession. In some cases, customers are not aware that they are not the legal owners of their car and do not realise that selling it is fraud. The finance company remains the owner of a car until all outstanding finance has been paid. At this point, a lender will generally transfer legal ownership to the customer and he/she can then do what they want with the car.“

Continues Nicola Johnson of HPI, “We advise buyers to always conduct an HPI Check to discover if a vehicle is on outstanding finance. If it is on finance, find out if the agreement is closed, so that the finance record can be removed from the vehicle. If the finance is still current, a good idea is to pay off the finance yourself, and then raise a bankers draft in the name of the seller for the remainder. When you buy a car it is vital that you ask the right questions. No matter how much your instinct tells you to trust the seller, get the vehicle checked and get proof that the finance agreement was closed before you purchase.

“Being innocent won’t help you when the finance provider claims what is rightfully theirs. The best way to avoid being a victim of innocent fraudsters is to conduct a history check with a reputable service such as HPI, the AA Car Data Check or the RAC Car Data Check. Avoid cheap history checks, as these do not include finance information and as with most things, you will only get what you pay for.”

Top Tips to Avoid the Innocent Fraudster
  • Always conduct a vehicle history check BEFORE you buy – it will tell you if the car has outstanding finance against it and enables you to ensure that the finance agreement is concluded before you complete the purchase
  • If a car you are about to buy is on outstanding finance, raise two bank drafts, one in the name of the finance company for the outstanding amount of the loan and one for the seller for the remainder
  • The provision of a seller receipt or purchaser receipt will not stop a finance company trying to reclaim the vehicle from the buyer if the car later turns out to be on outstanding finance – so never accept one as proof the vehicle is clear of finance.
  • If you unwittingly buy a car on outstanding finance and discover this to be the case afterwards, don’t delay – negotiate with the finance house that holds the car’s title.
12 November 2010 Staff

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