If you want to sell your current car and it’s still under finance, you will have to jump through quite a few hoops before you can proceed. As a provider of Subaru car finance, we’re often asked this question, and it can be hard to answer. There are many factors to consider and each situation may have to be dealt with in a slightly different way. Let’s take a closer look at some of the problems that a seller would have to overcome.
The Three Parties
When they think about selling under car finance, Perth drivers need to be aware that there are three parties that need to be kept aware and happy. They are; the lender, the buyer and the seller (you). This can be a tricky juggling act, but if you keep your wits about you, prepare thoroughly and act honestly in your dealings, it is possible to sell a car that’s still under finance.
How Car Loans Work
Selling a car under finance can be tricky because of the way that car loans work. When you arrange a standard car loan, the loaned money is secured on the car, and if you fail to make a payment, it can be repossessed and sold to recoup the lender’s costs. This is known as a secured car loan, and it’s applied to car and not the car buyer. The buyer is responsible for repaying the debt, but the car is the basis for that secured loan, and any outstanding balance is always applied to the car. In the car financing industry this is called an encumbrance, and we will use this term as we go forward.
Is the Car You Want to Sell Encumbered?
The car you want to sell may not have money owing on it even if you borrowed to fund the purchase. If you used a credit card, unsecured personal loan or you have redrawn against your mortgage there will be no encumbrance on the car. In all of those circumstances, the loans apply to you and not the vehicle that you want to sell. This will make the car easy to sell, but all of these methods are typically bad ways to purchase a car anyway because of the higher interest rates.
How to Proceed with an Encumbered Car
If you want to sell your car under finance, you will need to talk to your lender about how you’re going to pay the loan off early. There may be some additional fees to pay, and this should be factored into your calculations. If you don’t have ready cash, you may have to arrange for the sales transaction to be completed with a representative of your lender present. If you want to sell to upgrade and you wish to arrange finance with your lender, this can be arranged, and any shortfall could be added to the new finance agreement. It’s always a great idea to be as honest and transparent as you can with the lender and buyer during this process.