Is it illegal to sell a car under finance?

July 5, 2022 City Subaru
Is it illegal to sell a car under finance - City Subaru

The quick answer? Yes! It’s possible to sell your car if it’s still under finance. It’s just going to take a bit of extra work – but it’s nothing you can’t handle.

In this article, we’re going to break down everything from the basics to the nitty-gritty of selling your car while it’s still under finance. Chances are, you are itching to sell that car and don’t want to wait until next year when the vehicle will be fully paid off. We get it – some things can’t wait.

Before you start talking to buyers, ensure you fully understand the ins and outs of the process – it might look slightly different for everyone.

What does ‘under finance’ mean?

Good question – essentially under finance means there is still money owing on the car. Usually, this means that whoever bought the car has either done so with the assistance of a car loan or via a personal loan – or even some hire-to-purchase agreement. At the end of the day, the term under finance means the money owing has not been fully paid off yet.

So can you sell a car under finance?

You may be wondering, is it illegal to sell a car under finance? The answer is absolutely not. In Australia, nothing is holding you back from selling your encumbered car apart from some standard (and sometimes) painful bureaucracy. But don’t stress – it’s not as ridiculous as you might think. Here’s everything you need to know.

Subaru Car Finance Advice, Is it illegal to sell a car under finance?

Is your car 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.

Options for paying the loan when selling

When it comes to selling a car under finance, you have two main options:

  1. Pay off the car before selling it
  2. Sell the car first, then use the money to pay off the loan.

If you’re going for the first option, then you’re good to go. Make sure once your final payment is in you’ve got the green light to sell. However, it’s probably much easier for many sellers to go with the second option – sell the car first and use the money to pay off the loan. Bear in mind that if your loan is secured against the car itself you will most likely need the agreement of your lender. Alternatively, if the loan is secured against another asset like the house, then there shouldn’t be any issues.

Subaru Car Finance Advice, Is it illegal to sell a car under finance?

What’s the process for selling a car that’s under finance?

1. Identity the parties involved

When it comes to selling a financed car, it’s important to identify the parties involved. First up there’s you – or the person who still owes money on the car. Then there’s the finance company, bank, dealership or the lender who has given you the cash to buy the car in the first place. And, of course, the buyer.

2. Find out how much you owe

This is an essential step in knowing how much money you may receive to pay off the outstanding finance owing on your car. Depending on where you are in your payment schedule, you may find that you can come out in the green if you play your cards right.

The amount owing should be easily available to you via your lender – they should give you an overview of how much is still owing – and while you’re speaking to them don’t forget to ask about any additional fees you might incur for the sale of your vehicle. Remember that you are breaking a contract – which will carry some fees.

3. Decide how to pay off the loan

Once you’re clear on how much is owing, and how much you can get for the car, you can decide whether you’re going to keep paying off the loan or dive in for the sale. Either way, it’s essential that you are aware of any additional costs involved before you advertise your car.

4. Ensure your car is running smoothly

If you’ve got the green light from your lender, it’s time to talk about the state of your vehicle. Basically, all used cars lose their value fast, but you can maximise the amount you can get by ensuring its service manual is up to date and that there aren’t any major maintenance issues outstanding. Make sure to check for any scratches, chips or dents which may reduce your resale value. A buyer will already be a bit nervous buying any car still under finance, no matter whether it’s a new car or an old clunker – so making sure it’s in top shape is essential.

5. Entertain buyers

Now that your car is ready to sell, it’s time to post your ad and start speaking to buyers. Remember that your goal isn’t to offload your car immediately, it’s to get the best price and maximise your profit. This can take some time, and buyers may be nervous. Be prepared to show them the tick of approval from your lender – maybe even show them this article, and reassure them that it’s not going to affect them in any way.

Find out more from the experts

If your car is under finance and you’ve got a burning question – you’re not alone. Here at City Subaru, our expert team is ready to assist you in ensuring that you get the best deal. Whether it’s advice, a last-minute service, or you’re wondering whether we’ll buy your car – simply give our Subaru dealers a call or drop by and have a chat.

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