You can sell a car under finance as long as you include the lender in the process and organise for the secured loan to be paid out as part of the sale process.
There will be additional steps compared to the sale of an unencumbered vehicle, but this is limited to a few extra phone calls and some forms to complete.
Any potential buyers should also be made aware of the security interest – they will find out anyway – and they also need to do their part to ensure the security is released prior to a transfer of ownership.
In this article, we will walk you through each step when selling a car under finance and how to manage both the lender and the buyer.
Key Takeaways: Selling a Car With a Loan
| Can I Sell Car with Loan? | Yes, but the loan must be paid out in full to remove the lender’s security interest before the title transfers to the new owner. |
| The Buyer | Most private buyers will want to pay your lender directly (for the payout amount), and you the remaining balance. |
| Negative Equity | If you owe more than the sale price of the car you must pay the difference to the lender before the sale can proceed. |
| Advantage of Dealer Trade-Ins | Selling to a dealer is easier as they handle the payout process for you, though you will likely get a lower price than selling privately. |
| Beware of Early Exit Fees | Always check your payout letter for early termination fees. These can eat into your profit from the sale. |
Selling a Financed Vehicle
Yes, you can sell a finances vehicle but it will require additional steps to complete the transaction.
The security interest will need to be removed before the change of ownership can be effected which will require careful coordination of the old and new lenders.
To understand the sequence of events in the car sale process, it is important to know the basic terminology associated with secured auto finance.
Under Finance
A vehicle under finance means that a lender still has a financial interest in the car as security for a loan.
If the loan is not repaid on time, the lender has the option to repossess the vehicle and sell it to recoup the funds owed.
The security interest will remain registered until the loan is paid in full.
PPSR & Security Registration Explained
In Australia, lenders register the car’s security interest on the Personal Property Securities Register (PPSR).
This is a national database that keeps track of assets used as collateral, ensuring transparency and protecting both lenders and buyers.
If you try and sell your car before paying off your loan, then a potential buyer will be able to see the encumbrance on the vehicle.
A buyer will require proof from your lender that this will be removed prior to transferring ownership of the vehicle.
Step-by-Step Guide to Selling a Secured Car
The car sale process will require coordination with your current lender, so ensure the loan is repaid and the security removed as part of the sale process.
Expect to spend time on the phone and completing paperwork throughout to ensure the transaction can happen smoothly.
Step 1. Notify Current Lender of Intention to Sell
The first thing to do is to speak to your lender and notify them that you intend to sell your vehicle.
Your lender will manage this process every day and will have a list of requirements and timeframes for each step of the process.
Knowing all of this prior to selling your car is wise so that there a no holdups later on that could cause a potential buyer to walk away.
Step 2. Obtain an Indicative Payout Figure
To remove the encumbrance, the loan must be paid out in full so it is important that you know the payout figure of your loan.
Your lender will need to account for:
- Current outstanding balance
- Any accrued interest not reflected in the current balance
- Early payout fees if applicable
The final figure could be higher than you think. So it is important to know this early in the process so that you can assess if you can actually pay out the loan.
Step 3. Get a Valuation on Your Car
You can do this yourself online by searching your vehicle’s make and model on the following websites:
You will get a range of values for both trade-ins and private sales.
This is where you will also have to be honest with yourself regarding the condition of the vehicle.
Any damage or higher than average kilometres will mean a lower sale price.
Once you have a realistic figure, you can then compare the potential sale proceeds to the indicative payout figure obtained by the lender.
If the proceeds are less than the payout then you will need to kick in some money to repay the loan and have the security removed.
If you cannot do this then it may not be the right time for you to sell.
Step 4. Find a Buyer
The previous step will have given you a useful comparison of both trade-in values and a private sale.
Trade-ins are quick and easy, but you will need to concede some ground on the sale price. A dealership needs to make a margin on the vehicle for it to be worth buying.
You will be able to get a higher price if you sell privately, but will also have to pay fees to advertise, deal with enquiries, test drives, and the price negotiation.
Which is a gigantic pain in the ass! Which is why many just take it to a dealership and take what they can get.
Step 5. Repay the Loan
Once a sale price has been agreed on and the funds are ready to change hands you will need to organise to payout the loan simultaneously.
Most buyers would prefer to pay the lender directly so they have some assurances that their money ends up in the right place.
This is also the fastest way to get the funds into the lender’s hands so they can start the process of removing their security interest.
Step 6. Remove the Encumbrance
Once payment to the lender has been confirmed, they can start the process of removing the encumbrance against the vehicle.
This can be done very quickly and should not hold up the transaction.
Step 7. Transfer Ownership
Ownership of the vehicle can now be transferred to the buyer through the relevant motor registry.
What If You Owe More Than the Car Is Worth?
If the value of your car is less than the payout figure on your loan, then you will need to close that gap somehow.
Your options can include:
- Paying the required funds yourself in a lump sum to the lender.
- Improve the condition of the vehicle to increase the sale price.
If neither of the above is realistic, then you may have to delay the sale of the car. Your options moving forward include:
- Continuing to pay down the loan until you have equity in the asset.
- Refinancing the loan if more favourable or sustainable terms are available.
If you are stuck and need to consider refinancing, then get in touch with our team of expert brokers today for a free car loan health check.
Be Transparent with Your Lender and Your Buyer
The biggest mistake that sellers of a secured vehicle can make is not speaking to their lender early in the process.
If you don’t know the payout figure, you could be in for a nasty surprise if there is a penalty fee for early repayment.
You also don’t want to lose a potential buyer because of unexpected delays while you complete any required paperwork from your current lender.
Approach the sale as a collaboration with your lender and it will be a much smoother process.
