This guide will show you how to sell a car under finance.
What do you need to keep in mind when selling an encumbered car?
Ideally, you won't need to sell a car that's under finance. If you plan on selling a car in the future, it's best not to have it under finance.
The value of a car can drop considerably in a few short years. Consider depreciation when taking out a car loan and how this will affect your ability to resell the car.
Generally, your two options are to pay off the loan and then sell the car, or to sell the car while it's still under finance.
Given the choice, most people wouldn't want to buy an encumbered car. If you're selling the car with debt rather than paying it off before selling it, you need to be clear about this as loan ownership is transferred with the car.
You should discuss your options with your lender before selling the car. It can help you understand the conditions of your loan and your options. Your lender may also be willing to readjust the terms of the car loan if it might help you to keep it and continue making repayments.
Can you sell a car that's under finance?
While you can sell a car that's still under finance, there are a number of potential issues you will need to consider. Note, a car with outstanding finance on it also goes by the name of an encumbered car.
With a secured car loan, it's the car itself that the loan is taken against, not the original buyer. As a result, if you sell the car but fail to repay the loan, the new buyer may find that the lender takes ownership of the vehicle. The buyer must trust that you will pay off your loan in full or else they risk losing the car. This makes your vehicle a less attractive option for potential buyers.
However, it's perfectly legal to sell an encumbered car and you just need to be upfront with potential buyers about the situation. If you wish to sell your car, you should also notify your lender and they will explain how you can pay off your loan.
Most lenders may allow you to sell the car under finance, provided you use the money to then pay off your existing loan. Depending on your loan, you may need to pay additional fees for settling your loan early.
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.
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 dealer before you sell the car.
Finder survey: What interest rate are Australians of different ages paying on caravan loans?
Response
5
17.24%
6
17.24%
3
10.34%
7
10.34%
4
6.9%
1
3.45%
10
3.45%
11
3.45%
2
3.45%
25
3.45%
30
3.45%
4.3
3.45%
40
3.45%
5.98
3.45%
7.5
3.45%
9
3.45%
Source: Finder survey by Pure Profile of 1113 Australians, December 2023
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:
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.
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.
Finalise the sale. Once you've agreed a price with the buyer, you can finalise the sale. Both the buyer and lender should request that they arrange the payment directly, with you receiving any money left over from the sale after the remaining loan amount and any early repayment fees or other charges have been paid off. If the buyer requests that you organise payment with your lender, you must do so once you have received the money.
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
You don't need to take on new debt.
You will eat into your savings.
You will need to pay any applicable fees or charges for paying your loan off early.
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
You can get a more affordable loan.
You can switch from a secured to unsecured loan, meaning you can sell your car when you wish.
Applying for a new loan may affect your credit score.
You may have to pay fees and charges for ending your existing loan and starting a new loan.
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
You can swap for a more suitable car.
You can cover your existing loan.
You may be taking on new debt.
You may be able to get a better price for your car elsewhere.
You will need to pay any applicable fees or charges for paying your loan off early.
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.
Elizabeth Barry is the lead editor for Finder. She has over 10 years' experience writing about a range of topics with a focus on personal finance. You’ll find her writing and commentary in a range of publications and media including Seven News, the ABC, MSN, the Irish Times and Singapore Business Review.
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As you are aware, part of registering a car is the documenting its engine details. Make sure there’s no outstanding finance on the car before you transfer the engine to your own car. This is your sole responsibility as the buyer who, according to Australian law, is responsible for ensuring the vehicle is free from any other interests.
There are some limited circumstances in which vehicles may be driven unregistered. Kindly see your state’s vehicle registration office for more info and further assistance.
I purchased a second hand vehicle from a car yard dealer last year and have recently tried to trade it in on another vehicle only to find out from the dealer that there is an encumbrance on the vehicle from a previous owner Has the previous yard done something inappropriate as I thought that they did the checks , that’s why I went to a car yard. Wondering what my options may be As the value is now only about $2000
When buying a vehicle, especially pre-owned ones, it is the buyer’s responsibility to check everything about the car and its papers. The best thing to do is to check everything that needs to be fixed or worked out with the vehicle before reselling it. Getting the vehicle in a good running condition will definitely increase its resell value which in turn allows you to ask more for it.
I need to upgrade to a larger vehicle. When trading in our existing vehicle to a dealership with finance owing, will the dealership payout the rest of the amount outstanding and combine the amount into a new finance for the new vehicle?
Thanks for getting in touch with finder. I hope all is well for you. :)
The answer to your question is it depends on what you and the dealer agree with. 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. Moreover, you also need to notify your lender about your plan. By discussing your plan with your lender and buyer, you will most likely have more idea on how to go about selling your car.
I hope this helps. Should you have further questions, please don’t hesitate to reach us out again.
I have purchased a car privately, and found out that the car has a financial interest on it. I asked the seller about this and he assured me that the depth had been cleared, as he has had the car transferred into his name for some months, and this was not possible to transfer without the payment being made. I checked with Vic raods and they confirmed the current ownership which was correct. Since I have contacted the financer Co, and they are confirming that money is still being owed, but will not confirm how much, as I was not the current owner. They then went further to ask me who the current owner is??? Obviously they don’t know… Firstly should I give this info to them, and if I purchase the Vehicle, am I able to get the current owner to agree in writing the there are no financial interest owing, and if such will be payable by the Seller, and get him to sign this as a legal doc, to cover myself.
Since you bought your car privately and don’t have the same protections in terms of warranties, it’s really important that you speak to a lawyer and get advice about it. You may also seek advice from Victoria Legal Aid on this number 1300 792 387 or through their website.
Meanwhile, you can check on Personal Property Securities Register (PPRS) whether the car is encumbered or not. You’ll need the vehicle number and registration details to get this report. You can also ask the seller for the transfer of ownership documents and registration papers if you haven’t done it yet. Please feel free to read more details about buying an encumbered car on our website.
I’m selling a car that is only 14months old. Do I need to get a road worthy certificate?
Is it possible to sell my car to a family member who is willing to take over the repayments of my existing loan?
You can actually sell a car that is under finance. Please note if the general guidelines above for further details. If your family member is willing to take over the repayments, then that would be good. Although you should also discuss your options with your lender before selling the car with regards to the conditions of your loan.
As for the roadworthy certificate, yes, basically, you would need a safety certificate when transferring registration to a new car owner.
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Hi,
Can I buy the engine out of the car that has finance still owing on it? I wish to put the engine in my car & get it registered.
Hi Shane,
Thank you for getting in touch with finder.
As you are aware, part of registering a car is the documenting its engine details. Make sure there’s no outstanding finance on the car before you transfer the engine to your own car. This is your sole responsibility as the buyer who, according to Australian law, is responsible for ensuring the vehicle is free from any other interests.
There are some limited circumstances in which vehicles may be driven unregistered. Kindly see your state’s vehicle registration office for more info and further assistance.
I hope this helps.
Have a great day!
Cheers,
Jeni
I purchased a second hand vehicle from a car yard dealer last year and have recently tried to trade it in on another vehicle only to find out from the dealer that there is an encumbrance on the vehicle from a previous owner Has the previous yard done something inappropriate as I thought that they did the checks , that’s why I went to a car yard. Wondering what my options may be As the value is now only about $2000
Hi Corey,
Thanks for your inquiry
When buying a vehicle, especially pre-owned ones, it is the buyer’s responsibility to check everything about the car and its papers. The best thing to do is to check everything that needs to be fixed or worked out with the vehicle before reselling it. Getting the vehicle in a good running condition will definitely increase its resell value which in turn allows you to ask more for it.
Hope this information helps
Cheers,
Arnold
I need to upgrade to a larger vehicle. When trading in our existing vehicle to a dealership with finance owing, will the dealership payout the rest of the amount outstanding and combine the amount into a new finance for the new vehicle?
Hi Doug,
Thanks for getting in touch with finder. I hope all is well for you. :)
The answer to your question is it depends on what you and the dealer agree with. 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. Moreover, you also need to notify your lender about your plan. By discussing your plan with your lender and buyer, you will most likely have more idea on how to go about selling your car.
I hope this helps. Should you have further questions, please don’t hesitate to reach us out again.
Have a wonderful day!
Cheers,
Joshua
I have purchased a car privately, and found out that the car has a financial interest on it. I asked the seller about this and he assured me that the depth had been cleared, as he has had the car transferred into his name for some months, and this was not possible to transfer without the payment being made. I checked with Vic raods and they confirmed the current ownership which was correct. Since I have contacted the financer Co, and they are confirming that money is still being owed, but will not confirm how much, as I was not the current owner. They then went further to ask me who the current owner is??? Obviously they don’t know… Firstly should I give this info to them, and if I purchase the Vehicle, am I able to get the current owner to agree in writing the there are no financial interest owing, and if such will be payable by the Seller, and get him to sign this as a legal doc, to cover myself.
Hi Paul,
Thanks for reaching out.
Since you bought your car privately and don’t have the same protections in terms of warranties, it’s really important that you speak to a lawyer and get advice about it. You may also seek advice from Victoria Legal Aid on this number 1300 792 387 or through their website.
Meanwhile, you can check on Personal Property Securities Register (PPRS) whether the car is encumbered or not. You’ll need the vehicle number and registration details to get this report. You can also ask the seller for the transfer of ownership documents and registration papers if you haven’t done it yet. Please feel free to read more details about buying an encumbered car on our website.
I hope this has helped.
Regards,
Liezl
I’m selling a car that is only 14months old. Do I need to get a road worthy certificate?
Is it possible to sell my car to a family member who is willing to take over the repayments of my existing loan?
Hi Sally,
Thank you for your inquiry.
You can actually sell a car that is under finance. Please note if the general guidelines above for further details. If your family member is willing to take over the repayments, then that would be good. Although you should also discuss your options with your lender before selling the car with regards to the conditions of your loan.
As for the roadworthy certificate, yes, basically, you would need a safety certificate when transferring registration to a new car owner.
Cheers,
May