Used cars: why buyers need to be wary

What is outstanding car finance and why should I care?

Outstanding car finance is the amount of money still owed on a used car when it’s sold. Someone has taken out a loan or a finance package to buy a car, but is now selling it on again before the loan amount is fully cleared. You should care because if you buy a car that still has money owing on it, that car can be repossessed.

Why would it be repossessed?

Because technically, if the loan was not fully paid off, then the car wasn’t legally the previous owners’ to sell. It belonged to the bank or finance institution that issued the loan, and they can take it back from you, even if you paid the supposed owner in full. Worse yet, there’s no recourse for you - in the case of a repossession, the finance company is acting entirely legally, and your only hope is to try and take a legal action against the person who sold you the car.

Buyers at risk of having cars repossessed by finance houses

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How prevalent is this?

More and more so. According to research by car history experts Cartell.ie 16.6 per cent, roughly one in six, used cars currently for sale still have money owed on them.

While it’s true to say that the vast majority of sellers will use the proceeds of a sale to clear that loan, there’s a clear danger that they’ll just walk off with your money, leaving you with a potential repossession.

Jeff Aherne, director of Cartell.ie, told The Irish Times: " In December 2014 we saw levels of finance outstanding at seven per cent: so in four years the rate has more than doubled. A buyer is advised to check a vehicle for outstanding finance as the finance company owns the vehicle until the last payment has been made - the bottom line is that you can lose the vehicle."

What can I do to protect myself?

Check. Everything. Carefully. Ask to see every scrap of paperwork pertaining to any potential used car purchase, and do a background history check to uncover any potential problems. Don’t hand over any money for any car until you’re entirely satisfied that the seller genuinely has the legal right to sell you the car. You can also turn to reputable dealers. Members of the Society of the Irish Motor Industry (SIMI) are not permitted to sell on used cars with outstanding finance.

Buying private always comes with greater risks, from checking the vehicle’s mechanical situation to whether the seller is actually the rightful owner. There are obviously good deals to be had buying this way, but with the savings come the risks. And with more new cars being sold under Personal Contract Plan (PCP) finance schemes, you need to be wary that the car is not simply a hire purchase lease by the seller. You may be able to pursue them through the courts for recompense if the car is seized, but that can take time, tie up your funds and leave you without transport in the meantime.