While it can be somewhat tricky to sell a car that’s under finance, it is possible. What makes it so tricky exactly? The fact that the car is under finance means it does not fully belong to you. It belongs to the lender, which means you will need to pay out the loan – alongside any fees the lender chooses to apply – before you can sell it on.
In this post, we’ll get into everything you need to know to successfully sell your car under finance. From how to tell whether your car is encumbered or unencumbered, to the steps you will need to take to sell your car if it is encumbered.
Is Your Car Encumbered?
If you used a secured car loan to buy your car – and you have not fully repaid that loan – it is encumbered.
Let’s break that down. When you applied for the car loan, the lender provided you with the funds you needed to pay for the car, under that agreement that you would use your car as collateral to the secure the loan. As part of that agreement, the lender retains the right to repossess your car if you fail to repay what you owe.
If you choose to sell the car before you’ve fully repaid your loan, that’s where things get tricky. You see, the loan is applied to the car, not the buyer. So, while it’s the buyer’s responsibility to repay the debt, because the car is collateral on that debt, the outstanding balance will always apply to the car itself.
Say you sold your car under finance but didn’t pay out the loan afterwards. While this may still land you in hot water, the buyer would be in hot water too. Essentially, the buyer would have paid you for the car, but the lender would still be expecting payment on the loan.
Steps to Selling Your Car Under Finance
Want to sell your encumbered car, while keeping your lender and the buyer happy? Here’s how you can do just that.
Step 1: Talk to your Lender
Before you even think about selling your car, you need to know where you stand. Talk to your lender to discuss your plans to sell. The lender will tell you how much you will need to pay out to finalise the loan, and how much you’ll pay in fees to pay out the loan early. Fees may include administration fees, break fees and cost-recovery fees.
Use this information to determine whether or not it’s a good idea financially to sell. If you have enough money to cover the cost of paying out the loan, you can do that before selling the car to simplify the process.
Step 2: List your Car for sale
Need to use the funds from the sale of the car to pay off the loan? It’s time to list the car. Do some research to find out how much similar cars are currently selling for, and price your car accordingly. Remember to take into account the cost of fees to pay out the loan – and the fact that most buyers like to negotiate down from the initial requested selling price.
Should you mention the car is still under finance? That’s up to you. However, you should consider being upfront about it. Potential buyers will most likely check the Personal Property Securities Register to check whether the car is under finance – and if you haven’t disclosed that info upfront, the buyer may wonder what else you are hiding.
Step 3: Allow Buyers to Inspect the Car
Alternatively, you may choose to talk about the car still being under finance when buyers inspect the car. As long as the buyer is happy with that, and you are both happy about the negotiated price, you can move forward with the sale of the car, and to then begin the payment process.
Step 4: Complete the Transaction
Many buyers will want proof that you have paid off the loan before transferring ownership. You can do this by visiting your lender with the buyer, and using the funds the buyer provides you to pay off the loan. If you know you will sell the car for less than the outstanding amount, it would be a good idea to cover this gap payment prior to the sale.
On the other hand, if you are selling the car for more than amount owing on the loan, you can arrange with the lender where you would like the excess to be transferred.
Step 5: Transfer Ownership
Once your loan has been paid out, you are free to sell the car. Make sure to have all necessary documentation with you at the time of transfer. Bear in mind, as the car’s previous owner, it’s your responsibility to submit the notice of disposal (usually within 14 days). From there, the rest of the process is up to the buyer.