Buy a used car in Great Britain, discover afterwards that it is still on hire purchase, and you will usually keep it. Section 27(2) of the Hire Purchase Act 1964 provides that where the person holding the car under the agreement disposes of it to a "private purchaser" who buys "in good faith without notice" of that agreement, the disposition "shall have effect as if the creditor's title to the vehicle has been vested in the debtor immediately before that disposition". The law treats the seller as having owned the car for that instant, so title passes to you and the finance company must chase the seller, not the car. Three things must hold at the moment of sale to you, not later: you are not buying as a motor trader or finance company, you are buying in good faith, and you have no actual notice of the agreement.
Why the seller has nothing to sell
On hire purchase and conditional sale, ownership stays with the finance company until the debt is cleared; section 29(1) defines both in those terms. A PCP is a hire purchase agreement with an optional final payment, so a car on PCP is a car the finance company owns — see our guide to PCP finance. An unsecured personal loan is different: the seller owned the car from day one.
Read that limit carefully, because it cuts both ways. Part III only engages where the seller's debt is hire purchase or conditional sale. If it is an unsecured personal loan, the seller owned the car outright and had every right to sell it — the debt is theirs alone and nothing follows the car to you. But "not hire purchase" is not the same as "not secured". Where a debt is secured against the car by some other route, section 27 does not engage at all, and the protection described on this page simply is not available to you. That is the one case where the reassuring answer above does not hold, and it is not a rare technicality worth burying in a table. If a check comes back showing finance and the agreement is not described as hire purchase, conditional sale or PCP, do not assume this page covers you: ask what kind of agreement it is, get it settled before you pay, and take your own advice. The rules on non-purchase-money security also differ between England and Wales, Scotland and Northern Ireland, and we do not set them out here.
Normally a seller cannot pass on ownership they do not have, a rule codified in section 21 of the Sale of Goods Act 1979. Part III of the 1964 Act, substituted in its current form by the Consumer Credit Act 1974, overrides it: section 27(5)(a) applies "notwithstanding anything in section 21 of the Sale of Goods Act 1979 (sale of goods by a person not the owner)".
Section 27(2) is precise about something people miss: it does not say the finance company loses its money, it says the sale takes effect as if the seller had owned the car. Title passes to you, and what remains is a claim against the seller — section 27(6) confirms nothing in the section "shall exonerate the debtor from any liability (whether criminal or civil) to which he would be subject apart from this section".
Who counts as a private purchaser
Section 29(2) defines a "trade or finance purchaser" as a buyer who, at the time of the sale to him, "carries on a business which consists, wholly or partly, — (a) of purchasing motor vehicles for the purpose of offering or exposing them for sale, or (b) of providing finance by purchasing motor vehicles" for hire purchase or conditional sale. A "private purchaser" is "a purchaser who, at the time of the disposition made to him, does not carry on any such business."
It turns on the buyer's business, not on whether the sale was private: a consumer buying from a franchised dealer is still a private purchaser. A trader buying that car gets nothing from section 27(2), but the chain is not poisoned permanently: section 27(3) attaches the protection to "the first private purchaser of the motor vehicle after that disposition". A dealer who unknowingly takes a financed car in part-exchange is exposed; the customer who buys it off the forecourt is not.
| Buyer, at the time of the sale | Position under Part III |
|---|---|
| Private buyer, no actual notice | Protected — s.27(2) |
| Private buyer with actual notice | Not protected |
| Motor trader or finance company | Not protected by s.27(2) |
| First private buyer after a trader | Protected — s.27(3) |
| Debt that is neither HP nor conditional sale | Section 27 does not engage |
Without notice means actual notice
Section 29(3) sets the test: a person "shall be taken to be a purchaser of a motor vehicle without notice of a hire-purchase agreement or conditional sale agreement if, at the time of the disposition made to him, he has no actual notice that the vehicle is or was the subject of any such agreement."
Notice is only half of the test. Section 27(2) asks for a purchase "in good faith" and "without notice", and the two are not the same question. Actual notice is a higher bar than "ought to have known": a buyer who never ran a finance check has not, by that omission alone, acquired actual notice of an agreement they knew nothing about. Carelessness is not knowledge — the opposite of what much consumer advice implies. Good faith is the separate question of whether you dealt honestly with what was in front of you, and it is where a price and a story that made no sense get argued over. Neither is a reason to skip the check:
- Checking and buying anyway is what reliably destroys the protection. A check showing outstanding finance hands you actual notice under section 29(3), and section 27 then gives you nothing. Run it before you pay.
- The Act assumes the chain in your favour, but only in a fight. Section 27 engages only where the person holding the car under the agreement is the one who disposed of it, and a buyer can seldom prove that. Section 28 fills the gap: in any proceedings "(whether criminal or civil)" it presumes, unless the contrary is proved, that the disposition to you was made by the debtor — and if it was not, that the car reached you through a private purchaser buying in good faith, or through the first private purchaser after a trader. The presumptions are generous, and they exist because these arguments reach a court.
- Finance is not all a check reports. HPI and its competitors also flag stolen markers and write-off categories. Section 27 cures a hire-purchase title defect, not theft.
What to ask, and the document to see
Ask in writing, so you have a record of the answer — that is the evidence good faith turns on later. Is there finance outstanding, of any kind? Who is the agreement with, and what is the settlement figure today? Are you the registered keeper, and also the legal owner?
Then look at the V5C: check the name and address against the seller's identification and the address you are standing at, and the vehicle identification number against the one stamped on the car. What it will not do is prove ownership. DVLA's buyer-beware guidance is blunt — "Buyers often mistakenly believe the V5C to be proof of ownership of a vehicle. This is not the case" — and advises that "buyers need to ask for proof of ownership, for example a bill of sale".
The document that settles it is a settlement letter from the finance company, in the seller's name, giving a figure and its expiry date. Pay that figure to the finance company directly and the balance to the seller, never the full price against a promise to settle. If the seller wants out part-way through, voluntary termination is their alternative; what questions should I ask a car dealer covers the wider list.
Buying from a dealer
Part III works the same way on a forecourt, because it turns on your business and not the seller's: a consumer buying from a dealer is a private purchaser, and section 27(2) protects them. The dealer carries the title risk on the way in, and section 27(3) stops it travelling out to you.
A dealer sale also adds rights a private sale does not — the Consumer Rights Act 2015, and the Consumer Credit Act 1974 where the dealer arranges the hire purchase or PCP. Those are a different subject: they are about the car being faulty, not about who owns it, and they sit alongside Part III rather than replacing it. We set them out, including the deduction-for-use carve-out that applies to cars and the reason section 75 is the wrong lever on dealer-arranged finance, in our Section 75 and car finance guide and in what are my rights if a used car breaks down.
The tax does not travel with the car either
One more thing the seller cannot hand over. When they tell DVLA the car is sold, the existing vehicle tax is cancelled and refunded to them, so the remaining months do not travel with the car: you must tax it in your own name before you drive it, or declare SORN. Vehicle tax and DVLA registration are UK-wide, unlike Part III. The rates are in our guide to vehicle tax when buying a used car, and the car tax calculator gives the figure for a particular car.
If a finance company contacts you
Do not hand the car over on a phone call. Put your position in writing: when you bought it, what you paid, who from, and that you bought as a private purchaser within section 29(2), in good faith, with no actual notice under section 29(3). Keep the advert, the messages and the receipt. How your facts will land is not something a guide can tell you — take legal advice.
Northern Ireland
Section 37(5) of the 1964 Act states that "This Act shall not extend to Northern Ireland." The equivalent sits in Part VI of the Hire-Purchase Act (Northern Ireland) 1966, in materially the same terms — section 62(2) protects a private purchaser buying "in good faith without notice", and section 64(2) defines both classes of purchaser in the same words as section 29(2). See our guide to buying a car in Northern Ireland.
Quick takeaways
- A private buyer in good faith without notice generally keeps the car — section 27(2).
- "Without notice" means no actual notice under section 29(3); not having checked is not, by itself, notice.
- Traders get nothing from section 27(2); the first private buyer after them is protected by section 27(3).
- Section 28 presumes the chain of sale in your favour unless the finance company proves otherwise.
- Check before you pay — checking, seeing finance and buying anyway ends the protection.
- The V5C is not proof of ownership; pay any settlement figure to the finance company directly, and tax the car before you drive it.
Browse used cars on Autoza or our buying guides.
