Buying a car that still has finance or a lease on it

The registration document states who keeps the car — who uses, insures and pays tax on it. It does not necessarily state who owns it. With a financed car the bank may hold security rights; with a leased car it belongs to the leasing company. In both cases the keeper cannot dispose of it alone.

Buying from someone who may not dispose of the car risks the bank or leasing company later demanding it back. Whether and how far a buyer in good faith is protected varies from country to country, and relying on it in a dispute is the most expensive option of all.

A leased car belongs to the leasing company until the contract ends normally or is settled early. The lessee cannot sell it; they can only agree a settlement with the leasing company, after which the car is transferred to them or directly to a buyer.

In Switzerland leasing companies often have an entry made in the registration document that blocks a change of keeper without their consent — known as code 178. If it is in the document, the car cannot be registered to you until the leasing company has it removed. Ask about it before you pay anything.

With car finance in Germany, the bank usually keeps part II of the registration certificate as security until the loan is repaid; in Austria it is often the type certificate. A seller who cannot produce this document is selling either a financed car or one where something else is wrong.

Switzerland has no such document identifying the owner. A retention of title can, however, be entered in the register kept by the debt enforcement office — at the place of residence of whoever acquired the car subject to it, which means today's seller. Loan agreements can also rule out a sale without the lender's consent. Ask the seller directly whether the car is financed, and have the answer written into the contract.

The most common mistake is the obvious one: transferring the whole price to the seller, who promises to use it to pay off the loan. If the payment to the bank does not happen, you have paid and still do not get the papers.

The safe route runs through the lender, not through the seller:

Before payment: the settlement statement in original, or as a document directly from the lender rather than a photographed printout, and a check that the chassis number on it matches the one on the car. If in doubt, call the bank — on the number from its website, not the one on the letter.

After payment: the release in writing, the returned document or the removal of the entry, and a contract stating that the car is handed over free of third-party rights. Keep everything together; it is your proof that you acquired the car from the right party.

When a dealer buys in a financed car, he normally settles the outstanding debt himself before reselling it. Anyone buying from a dealer therefore usually gets the car free of other parties' rights.

“Usually” means: ask to see the documents that prove it at handover, and record in the contract that the car is unencumbered. A serious dealer has no problem with that, because he carried out the same check himself when buying the car in.

From the other direction the same applies, with the roles reversed. Tell interested buyers early that the car is financed, and request the settlement statement before the first viewings. A buyer who sees that you have prepared the safe route negotiates differently from one who only learns about the bank at handover.

Offer of your own accord that the buyer pays the settlement amount directly to the bank. That removes their risk of having to trust you with the whole sum, and spares you the discussion about it. With a leased car, first check with the leasing company whether it allows a sale at all.

When buying abroad, the rules of the country where the car is registered apply — and which document proves ownership or security there differs from country to country. Ask the seller which document the bank holds and have the release procedure there explained to you before you send money.

How to pay across a border without losing money, and which documents an import requires, is covered in separate guides. For a financed car, all of it applies twice over.

A financed car is not a warning sign; a seller who conceals it or wants to reverse the order is. Most cases that go wrong follow the same patterns, and they usually show before any money moves.

Some patterns recur in sales that are not clean: