1 April 2022 · Our Blog - Read The Latest Articles

Tips for Buying & Selling a Car under Finance

Car Under Finance? What You Can Do With It

Buying a car is a major investment, and most of us won’t have the cash to make the purchase outright. Low interest rates make car loans affordable, and they let you spread out the cost of the vehicle. The only issue you’ll face with a car loan is what to do if you want to sell the car before the loan term is up. While a vehicle is still under finance, there are a few things your lender will prevent you from doing. In this article, we’ll look over your options for selling or upgrading your car and how to handle any outstanding loan.

When is a Vehicle Under Finance?

Being “under finance” means a vehicle was bought using a car or personal loan. Car loans (also known as car finance) are typically secured loans, meaning the value of the loan is secured against the car. If you stop making repayments on the loan, the finance company can take possession of the car to sell it and recover their money.

When you use a secured loan to buy a car, it’s considered under finance until the full value of the loan is repaid. For example, if you bought a new car with a $30,000 loan and made repayments until $10,000 was owing, the car would be considered under finance, also known as being ‘encumbered’. Until the last $10,000 is repaid, you won’t own all of the car, and your lender could repossess it if you stop paying.

The good news is that selling an encumbered car is both legal and common! Secured car loans are low interest and low risk, so they’re popular with car buyers, but people often need to switch cars or upgrade before the loan is fully repaid. Read your finance contract to find out the process for selling the car while it’s under finance. Most lenders will require you to pay early exit fees and use money from the sale to finish paying off the loan.

Selling an Encumbered Car

If you want to sell an encumbered car, you have a few options available. Buyers won’t be concerned about a car being under finance as long as you handle the situation honestly.

To sell a car with finance left (encumbered car) you can:

  1. Pay off the loan before selling. You can use cash or another source of finance (like a mortgage or personal loan) to pay off the loan before selling the car. Doing this makes private sales simpler. But, personal loans and credit advances have higher interest rates, so you can be left juggling extra debt.
  2. Pay off the loan during the sale. When selling an encumbered car, you’re usually required to pay off the rest of the loan. So, if you owe $10,000 and you sell the car for $20,000, the first $10,000 goes to the lender. Notify your lender that you want to sell the car and let them organise the exchange of money. This way, the buyer effectively pays off the remaining finance directly.
  3. Sell the car to a dealership. Dealers have access to great finance deals and can handle the exchange of money and arrange a new car deal all at once. Some borrowing options, like Toyota Access finance, even allow you to sell your car back to the original dealer when you’re ready to upgrade.

Buying an Encumbered Car

If you’re buying a car privately, it’s important to perform a PPSR check which you can do for free at https://www.ppsr.gov.au/ to see if there’s any money owing on the vehicle. Avoid buying encumbered vehicles if the loan isn’t going to be paid out immediately. As long as the previous owner owes money on the vehicle, the lender is within their rights to repossess and sell the car if the previous owner stops making payments.

If you’re buying from a reputable dealer, they will have checked for any encumbrance on your behalf.

Buying a car on finance is one of the simplest ways to get into the right car for your lifestyle. If your lifestyle changes or you’re ready for an upgrade, selling a car under finance shouldn’t be an issue. To take care of the encumbrance and upgrade all at once, feel free to talk to the team at Downtown Toyota! We’re East Brisbane’s Toyota specialists, and our stock includes a range of new cars and Toyota Certified used vehicles. We can also sort out Toyota Access financing with our Guaranteed Future Value program.

Get in touch with us online for more about our cars and finance, or come down and see us in person!