How to avoid buying a car on lease (and save lots of money)

While many people in the UK consider used car sales straightforward, hidden complications can sometimes arise, turning a simple process into a potential minefield.

A common mistake is inadvertently buying a vehicle already tied to an outstanding lease or finance arrangement – an error that puts your funds and the car at risk.

Within this article, you will learn:

• Why cars on lease or finance can be such a dangerous risk
• How sellers may try to sell these vehicles, sometimes illegally
• How to check if a car is on lease (and other important checks)
• What the legal consequences are for both buyers and sellers

Read on to protect yourself from costly mistakes and ensure a safe car transaction.

Can you sell a vehicle on lease?

In Britain, it is pretty rare to be able to purchase a car at the end of a lease, and in many scenarios, you can’t simply sell it outright because you do not legally own the vehicle. This can vary depending on the type of agreement:

• Operating lease: Typically, the option to buy the car at the end of the lease term is not included.
• Finance agreements: Some finance agreements (e.g., Hire Purchase (HP) or Personal Contract Purchase (PCP)) allow you to purchase the vehicle once you’ve made all the required payments. In these cases, you basically own the car at the end, making it possible (though not always simple!) to sell.

Key point: You must have legal ownership (i.e., the finance cleared and any purchase options completed) before you can sell a vehicle. If the finance company has not confirmed ownership is transferred to you, selling the vehicle may be considered fraud.

Despite it being illegal to sell a car that’s still on lease or under a finance agreement without settling the debt first, such sales do happen. Buyers often skip essential checks or are unaware of how to verify a car’s financial status. In some instances, sellers are desperate to get rid of the car due to financial struggles or misunderstandings about their legal obligations, leading to risky or fraudulent transactions.

Fraudulent sales of leased cars: how they happen

Despite it being illegal to sell a car that’s still on lease or under a finance agreement without settling the debt first, such sales do happen.

How can someone “sell” a car they do not legally own? This often happens through either intentional scams or misunderstandings:

1. Scams. Fraudulent sellers may intentionally offload leased or financed cars by concealing their financial status or falsifying documents. For example, they might forge an “authorization letter” from the leasing company to mislead buyers. Unsuspecting buyers who fail to run checks could lose the car if the finance company reclaims it.
2. Unintentional. In other cases, sellers may not fully understand the terms of their agreement, believing that having possession of the vehicle (and possibly the V5C) equals ownership. While there is a difference between the car’s keeper (registered with the DVLA) and its legal owner, not everyone understands this distinction.

Owner vs. keeper: who holds possession of the car?

• Registered keeper (V5C holder) is the person or entity responsible for taxing and insuring the vehicle and receiving official correspondence from the DVLA.
• The legal owner is the individual or company with a financial claim on the vehicle. In the case of a lease, the leasing or finance company is the legal owner.

If you have the V5C in your name, you’re recognised by DVLA as the registered keeper – not necessarily the legal owner. This misunderstanding often leads people to wrongly assume they can sell a leased car.

How the registration can happen

Even if a seller manages to transfer a V5C into your name, that alone doesn’t grant you legal ownership. Some buyers incorrectly think receiving the V5C and taking possession of the car ensures full ownership rights. In reality, if the leasing company remains the legal owner, you risk losing the car without compensation.

How to check if a car is on lease with carVertical

Doing your due diligence before purchasing a used car is the only foolproof way to avoid expensive surprises – like discovering the car is under lease or a finance agreement. You can do this with carVertical, which provides comprehensive vehicle history reports to help you identify financial restrictions, including leases.

Here’s how:

1. Obtain the vehicle’s REG or VIN number
2. Enter the number on carVertical to generate a vehicle history report
3. Review the Financial and Legal status section to see if the vehicle is under a lease or operating lease agreement, or subject to unit stocking (financed by a third party, often for dealership inventory)

Additionally, in the Legal part of this section, you can see whether the vehicle has passed technical inspections or if it’s marked as “scrapped.”

Beyond financial restrictions

A carVertical report doesn’t just help you dodge leased or financed cars. It also reveals:

• Accident or damage history (including insurance write-offs)
• Mileage verification to detect odometer fraud
• Ownership changes
• Stolen vehicle checks
• Technical specifications
• Historical photos
• Market value

5 more tips to follow

Besides getting a comprehensive vehicle history report, here are five additional steps to safeguard yourself from buying a leased car:

1. Ask for written confirmation from the seller that the car is fully paid off and not under any active finance or lease agreement.
2. Contact the finance company if the seller claims the car was on finance but has been cleared. A quick call can confirm it’s truly settled.
3. Match the seller’s ID to the name on the V5C and any finance clearance letters. Watch out for inconsistencies in personal details.
4. Be wary of suspiciously low prices or rushed sales, as they may indicate the seller is trying to offload a leased vehicle.
5. Verify other essential documents, like valid MOT certificates and service records, to ensure the car’s overall condition and legitimacy.

What are the consequences of buying or selling a leased car?

Selling or buying a leased car without proper procedures exposes both parties to severe risks.

Consequences for the seller

• Legal action: Potential fraud charges if it’s proven they knowingly sold a vehicle they didn’t own.
• Financial penalties: Being sued by the leasing or finance company for breaching contract terms.
• Damaged credit score: Failing to keep up with payment obligations can result in negative marks on their credit history.

Consequences for the buyer

• Vehicle repossession: The legal owner (finance or leasing company) can reclaim the car without compensation.
• Financial loss: Any money paid to the fraudulent seller is typically challenging to recover.
• Legal complications: Involvement in a disputed ownership can lead to court action and additional expenses.

Why do people try to sell leased cars?

There are several reasons why someone might try to unload a leased car. Some people genuinely misunderstand their contractual obligations, while others engage in scams or desperate financial moves, hoping to pass the problem onto an unsuspecting buyer.

Is there a way to handle this legally?

Yes. If a seller genuinely wants to dispose of a leased or financed vehicle:

1. Contact the leasing or finance company: Discuss early termination or settlement figures or check if there is an option to transfer the agreement to a new owner.
2. Pay off any outstanding finance: Typically, the best way to legally sell a car on finance is to clear all remaining debt so you truly become the legal owner.
3. Obtain written confirmation: Ensure all parties agree in writing that the lease or finance has been fully settled or transferred.
4. Follow formal transfer procedures: If the finance company permits the transfer, file the necessary paperwork so the new owner or keeper is updated officially. Check out how to transfer car ownership for more details.