When they think about new and used car finance, Perth drivers will often consider those buying a car and not selling one. In fact, many people sell their cars while they are still under finance rather than trading them in against a newer model. In this article, we will take a closer look at how this can be achieved and some of the pitfalls that you need to avoid.
Selling a Partially Owned Car?
When they look at used car finance, Perth based sellers will quickly learn that there is no such thing as a partially owner car. If there are any payments left to be made, then you don’t actually own the car at all. If you want to sell the car and you still owe money on it, or there is a financing arrangement in place selling can be complicated. Essentially, there are three parties that you need to keep happy in order to get the car sold while it’s under finance, they are you, the lender and the prospective buyer. This is sort of a juggling act, but if you can be organised, prepared and honest with the lender and the buyer the car can be sold without too many problems.
Why is Selling a Car Under Finance Hard?
This issue boils down to how a car loan works; a typical car loan will use the car as a safeguard in the event that you fail to make a payment. The financing is secured on the car, and this is why it’s known as a secured car loan. The vehicle is the security, and if you cannot make the loan repayment, it will be repossessed and then sold to recoup the outstanding loan amount. Essentially, the car loan is applied to the car and not the buyer, and this is known as an encumbrance.
Is the Car Your Selling Encumbered?
The car may not have money owing on it, even if money was borrowed to buy it initially and you may not be encumbered. If you used a credit card or an unsecured personal loan to purchase the car, then the lender cannot use those possessions as security. This would mean that the loan would apply to you and not the car that you would like to sell. However, a credit card or personal loan will typically have a higher interest rate compared to a car loan over a more extended period. Because there is no larger ticket item to provide security the lender will not get their money repaid in full if you fail to make a payment. This is how a lender can afford to take the risk that you are effectively taking out an unsecured loan.
Examining the Options
If you want to sell a car under finance, you will need to inform your lender. Explain how you are going to pay the loan off from the proceeds of the car sale. There may be some fees to pay when you pay off a loan early and this need to be factored into your calculations. If the amount loaned is more than the car is currently worth you will have to repay the difference. Wherever possible, you should try to remove the encumbrance before you attempt to sell the car. Always be honest with the buyer about the situation and explain that there are extra steps that need to be followed. If you have a loan deal with a car dealership, always check with them first about a possible upgrade deal that could be a better option for you.