Selling a car is a big decision, and it can be complicated if the car is still under finance. If you’re wondering, can you sell a car under finance in Australia, the short answer is yes—but with certain conditions. Selling a car with an outstanding loan is a bit more involved than selling a car outright, and it’s essential to understand the legal and financial aspects before making any decisions.
In this blog, we’ll explain the process of selling a car under finance, the steps you need to take, and what to consider before selling a car that still has a loan attached to it.
What Does it Mean to Sell a Car Under Finance?
When you purchase a car on finance, you’re entering into a loan agreement with a lender or car dealership. As part of this agreement, the car is usually used as collateral for the loan. This means the lender holds an interest in the vehicle until the loan is fully repaid.
Selling a car under finance means selling a vehicle that has an outstanding loan or debt attached to it. The car can’t technically be sold outright to a buyer until the loan is paid off, as the lender still holds a financial interest in the vehicle. However, it is possible to sell a car under finance, but there are specific steps and considerations involved.
Can You Sell a Car Under Finance in Australia?
Yes, you can sell a car under finance in Australia, but there are several key things you need to do before you proceed with the sale. Here’s what you need to know:
1. Check Your Loan Balance
The first thing you’ll need to do is find out how much you still owe on the car loan. Contact your lender and ask for a loan payoff figure. This figure will tell you exactly how much you need to pay to settle the loan and release the lender’s interest in the car.
If you owe more than the car is worth (known as being “upside down” on the loan), you will need to make up the difference out of pocket when selling the car. This can make selling the car more complicated, as the sale price may not cover the entire loan balance.
2. Contact the Lender
You will need to inform your lender about your intention to sell the car. They may have specific procedures for this situation. The lender holds the title (or ownership) of the car until the loan is fully paid off. When you sell the car, you will need to ensure the lender is paid the loan balance in full.
In most cases, the lender will require you to pay off the loan before they release the title. If the sale price of the car is not enough to cover the loan balance, you will need to pay the difference out of your own pocket or arrange for other financing to cover the remaining amount.
3. Pay the Loan Off Before the Sale
If possible, you should aim to pay off the loan before selling the car. This will make the process smoother, as you will have full ownership of the car and be able to transfer it to the buyer without restrictions. Once the loan is paid off, the lender will release the car’s title, and you can proceed with the sale.
If you’re unable to pay off the loan before selling, you will need to arrange with the buyer to pay the lender directly, which can complicate the sale. The buyer may be hesitant to proceed if they don’t fully understand the process, so be prepared for questions and possibly having to explain the situation.
4. Selling the Car: Paying Off the Loan
If you choose to sell the car while the loan is still outstanding, the proceeds from the sale should go directly to paying off the loan. This will typically be done by either:
- Paying the lender directly: If the car’s sale price is enough to cover the remaining loan balance, you can use the sale proceeds to pay off the loan and have the lender release the car’s title.
- Buyer paying the lender: In some cases, the buyer may pay the lender directly to pay off the loan, with any remaining balance going to you.
You must ensure that the lender releases the title of the car once the loan is fully paid. This is crucial, as without the release of the title, the car cannot be legally transferred to the new owner.
5. Settling Any Shortfall
If the sale price of the car is less than the amount owing on the loan (i.e., the car is worth less than your outstanding balance), you will be required to pay the difference, often referred to as a shortfall. This can be difficult for sellers, as you may need to come up with additional funds to settle the loan.
In these situations, some people choose to refinance the remaining debt or take out a personal loan to cover the shortfall. Others may choose to keep the car until they can pay down the loan balance further.
6. Transfer of Ownership
Once the loan is paid off and the lender has released the title, you can proceed with the transfer of ownership. In Australia, the transfer of ownership is done through the state or territory’s motor vehicle registry. You’ll need to complete the necessary forms and provide the buyer with a receipt and any other documents required by your local registry.
After the transfer is complete, the buyer will have full ownership of the car, and the process of selling the car under finance is finished.
Pros and Cons of Selling a Car Under Finance
Pros:
- Get rid of an unwanted car: If you’re struggling to make payments or no longer need the car, selling it could help you reduce your financial burden.
- Access to new opportunities: Selling the car could give you the opportunity to pay off the loan and start fresh, whether you’re buying a new vehicle or pursuing other financial goals.
- Potential for paying down debt: If you’re able to sell the car for a price higher than the remaining loan balance, you can pay off your loan and use the extra funds for other financial needs.
Cons:
- Loan shortfall: If your car’s value is less than the amount you owe, you may face the challenge of covering the shortfall out of pocket.
- Complicated process: Selling a car under finance can be more complicated than a regular sale, requiring you to work closely with your lender and ensure the loan is settled correctly.
- Potential impact on your credit: If you’re unable to pay off the loan or settle the shortfall, it could affect your credit score, especially if the loan goes into arrears.
What Happens if You Sell the Car Without Paying off the Loan?
Selling the car without paying off the loan can have serious consequences. If you sell the car without the lender’s consent or without paying off the loan balance, the lender can take legal action against you. This could result in:
- Repossession: The lender may repossess the car from the new owner.
- Debt recovery: You may be pursued by the lender for the remaining balance of the loan, including any shortfall.
- Damage to your credit score: If the loan is not paid off or goes into default, it could negatively impact your credit rating, making it harder to secure future loans.
To avoid these consequences, ensure that the loan is fully settled and the title is released before transferring ownership of the car.
Conclusion
Can you sell a car under finance in Australia? Yes, but there are several important steps you must follow to ensure that the sale is legal and that the loan is properly settled. The process can be more complicated than selling a car outright, especially if there’s a shortfall in the sale price. It’s crucial to pay off the loan or arrange for the buyer to pay the lender directly, and ensure that the lender releases the title before transferring ownership.
If you’re unsure about how to proceed with selling a car under finance, it’s always a good idea to speak with your lender or a financial advisor to guide you through the process.
At Sydney Finance, we can assist you with understanding your car loan options and help you navigate the process of selling a financed vehicle.
Ready to sell your car under finance? Contact us today for expert advice and tailored solutions.
FAQs
- Can I sell a car if it’s still under finance?
Yes, you can sell a car under finance, but the loan must be settled before the car can be transferred to the new owner. - What happens if I sell the car and don’t pay off the loan?
If you sell the car without paying off the loan, the lender can take legal action, including repossession of the vehicle and damage to your credit score. - Can the buyer pay off the loan directly?
Yes, in some cases, the buyer can pay the lender directly to settle the loan, with any remaining amount going to you. - What if the sale price doesn’t cover the loan balance?
If the sale price is less than the remaining loan balance, you will need to cover the shortfall, either by paying it off out of pocket or refinancing the remaining debt. - How do I transfer ownership of the car after selling it?
Once the loan is paid off and the lender releases the title, you can complete the transfer of ownership through your state or territory’s motor vehicle registry.