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Can I Sell a Car Under Finance?

Posted on: November 23, 2015 by Platinum Direct

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Selling your car is much easier than it once was. We have auction sites like eBay and car buying wholesalers, classified ads and signs in our car windows – all of which have come with their own host of pros and cons.

But before you can even face writing ads and calling prospective buyers you might find yourself with a fundamental problem – ‘Can I sell a car under finance if I don’t legally own it?’

If you obtained your car through a financing agreement, a host of complications might come up. You will have to find a solution that keeps all three parties involved happy – your buyer, your lender, and yourself.

Luckily, with a bit of work and savvy, you should be able to get well on your way to getting rid of your old car.

Why is it more difficult to sell a financed car?

When you take out a standard car loan, your car is used as a ‘safeguard’. This is what is called a ‘secured loan’. The loan is secured in the sense that your car acts as the lender’s security. If you cannot keep up your payments, the lender is entitled to repossess it and sell it to recoup what you owe.

Sounds simple, but what is complicated about a secured loan is that the loan is applied to the car, not the car’s owner.

Although the buyer has the responsibility to keep up with the loan (not the car, obviously), any outstanding payments on the car apply to the car itself. This is what is known as ‘an encumbrance’.

If you have any outstanding payments on your car, you will have to settle them before selling.

Is my car encumbered?

Your car is encumbered if you still owe money against it according to your finance agreement. However, there are some circumstances, like if you bought your car using an unsecured loan, where your car will not be encumbered.

If you paid for your car with an unsecured loan, such as with a credit card or a personal loan, your car cannot be repossessed as it has not been ‘secured’ against your debt. This is why unsecured loans have much higher interest rates, as the risk for the lender is much higher as they have nothing to fall back on, like repossessing your car.

Can I sell my financed car?

In short, yes it is entirely possible. Although there will be a couple of extra steps to make sure you have paid off your loan on your car before you sell it.

The first step is to work out how much you need to pay your lender to cover the remainder of the loan. You should be able to speak to them to work this out.

Once you have your figure, you will need to work out how you are going to pay this off. Be aware that if you are paying off your car loan early there will be some additional fees. These fees differ depending on your lender, but generally include a break fee, a cost-recovery fee and an admin fee.

If you do not have the cash to pay off your loan, you can use some or all of the money you receive from the buyer to pay off your loan directly. You’ll have to work with your financial institution to iron out the details of a transaction like this, and may have to make the sale in their offices. Speak to your lender and they can help you facilitate the deal.

If the remainder of your loan costs more than you are making from the sale of your car, you will have to make up the difference yourself.

Just be honest

The most important thing you can do when selling a financed car is to be honest and upfront with your buyer. If you do not tell the buyer about your outstanding loan, it could lead to a whole host of problems and may be considered fraudulent behaviour – so don’t risk it!

If you do not tell your prospective buyer about your loan, they could easily look up the car on the Personal Property Securities Register anyway. If they find out you have concealed the finance on your car they will most likely pull out of the sale.

If you are considering selling a car you have purchased with a loan Platinum Direct Finance, make sure you get in touch so we can help you with the process.

If you have sold your previously financed car and can’t wait to purchase your new one, make sure you use our car finance calculator to get the best financing rates!


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