How do you sell a car under finance?

Can you sell a car that's under finance?

Yes, it is legal and possible to sell a car under finance but it's not always easy and can depend on the loan you have.

The first thing to do is check with your financier to make sure you are allowed to sell the car with the loan attached. This can depend on whether or not the loan is secured.

If you used a different asset as security against your car loan or if you opted for an unsecured or personal loan to help purchase your car, you're free to sell the car when you wish, but you will still need to continue making repayments until you have paid off your loan.

How can I sell my car under finance?

You will likely have 2 options when you sell your car under finance:

• Sell the car and use the money to repay the loan
• Sell the car and transfer the loan with it

If you sell the car and use the money to repay the loan, you should check whether you'll need to pay any early repayment fees.

If you can sell the car under finance, you should make sure to advertise clearly from the beginning that the car comes with a loan. But remember here that the buyer is taking on the responsibility of the loan. With the depreciation of the car value you may not get much, if any, money from the sale. This is why it's difficult to sell a vehicle under finance.

Our expert says: Consider fees and depreciation

"If you're hoping to sell the car and use that money to pay off the loan in full, there are a couple of things to consider.

Firstly, whether you are allowed to pay off the loan early without fees. Most fixed loans will charge a penalty if you pay off the loan before the loan term.

Secondly, you need to consider how much the value of the car has depreciated in the time you've been paying off the car. This might particularly be the case if you've got a longer loan term and you've been paying the car off for a few years. It might be that you won't be able to sell the car for even close to the amount you borrowed, and therefore it may not be able to repay the loan."

Rebecca Pike

Editor, Money

Questions to ask before selling your car under finance

If you want to sell a car under finance, you should first be able to answer the following questions:

• How much is still owing on the car? You need to know how much you still need to pay back on the loan.
• How will you pay back the lender? You need to keep the lender happy by paying back the entire car loan in full, plus any early repayment fees and other costs. Before deciding to sell your financed car, discuss it with your lender.
• How will you satisfy the buyer? Some people may be hesitant to purchase an encumbered car. You either need to make it very clear that any outstanding debt will be the buyer's responsibility or that any outstanding finance will be paid off by you.
• Does my loan allow me to sell the car? If you're using the car as collateral in a secured loan, you may not be able to sell it until you've completely paid it off, depending on the terms of your loan. This is something you should check with your lender before you sell the car.

How do I sell a car under finance?

If you want to sell a car you still owe money on, you can do so by following the steps below:

1. Notify your lender. Before arranging to sell your car, you should let your lender know and discuss your options. Depending on the terms of your loan, you may need to pay off the loan before you can sell the car or you may be able to arrange for the buyer to pay your lender directly. Your lender may also allow you to sell your car provided the money you receive is immediately used to pay off the remainder of your loan.
2. Find a buyer. After you have cleared the sale with your lender, you're free to find a buyer. You may choose to advertise the car online or in other media, or find a buyer directly. Once you've found a buyer, you must also notify them that the car is under finance and explain what they will need to do.
3. Finalise the sale. Once you've agreed a price with the buyer, you can finalise the sale. You will need to ensure the finance has been organised, whether that's by receiving the money to pay off the loan or transferring the responsibility of the loan.
4. Transfer ownership. You should arrange a time with the buyer to pick up the vehicle. It is their responsibility to transfer the registration into their name, but you will need to provide them with a proof of purchase document and also lodge a notice of disposal to confirm you no longer own the car.

What are my other options?

Regardless of your situation, it will generally be easier to sell your car after you've paid off your existing car loan. You have a number of options when it comes to paying off your loan. These include:

Pay off the car loan with your own savings

If you have enough in savings, you can use the money to pay off the rest of your loan. Your car will then no longer be considered encumbered and will be easier to sell.

Benefits and drawbacks

Refinance your car loan

If you're struggling to pay off your loan and are trying to sell your car as a result, it may be worth trying to refinance it to help reduce the cost of your loan. If you find a loan with more favourable terms, you can use it to pay off your existing loan and then continue to make lower repayments on the new loan.

Benefits and drawbacks

Upgrade your car at a dealer

If you were planning to sell your car in order to upgrade to a new one, a dealer may be able to help you do so. You can trade in your existing vehicle to cover what you owe on your existing loan and then get financing for a better car or downgrade if you're looking to save money. The dealer will often be able to arrange the payment to the lender on your behalf.

Benefits and drawbacks

Frequently asked questions about selling an encumbered car

• My car has finance on it. Is it better to sell it privately or at a dealership?

  Both options work. You may be able to get a better price selling it privately, but the outstanding finance is more likely to be a headache and turn private buyers away compared to reselling it at a dealership.

• What do I need to do before handing over the keys?

  Before you actually hand over the car, you should know exactly what's going to happen to the finance on it. Someone needs to give the lender its money and both you and the buyer need to know who it's going to be.

• Help! No one wants to buy my car with finance.

  If you aren't upfront about the car having finance, such as when you're placing an ad, then it might look a bit shady when you disclose that later. You need to proactively make it clear that you have a plan for repaying the loan.

• Can buyers tell if a car has finance on it?

  Potential buyers can find out if a car is under finance by getting an inexpensive history check of the car. Either way, you should always notify a potential buyer if your car is encumbered.

• Should I plan to sell a car under finance later?

  Ideally, your plans shouldn't include selling a car while it's still under finance because you generally won't end up getting value for money.

• Should I get a secured or unsecured car loan? How does this affect resale?

  Secured loans that use the car as collateral have better rates than unsecured loans, but it can be complicated to sell a car that's still under finance. Unsecured loans will generally have higher rates, but leave you free to sell the car when you wish. However, you would still be required to pay off the rest of your loan.

Written by

Elizabeth Barry

Journalist

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Elizabeth Barry is an experienced journalist with over 10 years of expertise in personal finance, contributing to outlets like the ABC, Sydney Morning Herald, and 7News. She holds a Master of Arts in Creative Writing and a Bachelor of Arts in Communication from the University of Technology Sydney, and has earned multiple award nominations, including a Highly Commended recognition at the 2017 Lizzies. Elizabeth began her career at Finder in 2013, progressing through roles to become Lead Editor, where she oversaw a wide range of personal finance coverage until 2024. See full bio

Elizabeth's expertise

Elizabeth has written 151 Finder guides across topics including:

• Banking
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