How to Buy a Car with Outstanding Finance
Understand the process and what you need to check
It’s fairly common for people to buy second hand cars in Australia. In fact, there are millions of them on the road right now. Many of these cars may still have finance owing on them – so what’s the process when it comes to buying a vehicle like this?
While people expect to take on a loan when buying a car, many people get nervous when the seller has finance still owing on the car. The important thing is that you always do your homework about the vehicle that you’re buying and make sure that you receive all the documents you need.
If you're not sure how to buy a car with outstanding finance, we can help you with all kinds of car loan advice.
What do you need to check before you buy the car?
If you decide to buy a car with finance still owing, you’ll need to understand that the responsibility is on you to find out about the car’s financial state.
It’s Australian law that the buyer of a vehicle is the one who is responsible for checking that the vehicle has a free title. You can check if a car has finance still owing on it by searching the Personal Property Securities Register (PPSR).
How to buy a car with finance owing
If your seller is not able, or happy, to pay off the finance owing before you purchase a vehicle, you'll need to know exactly what to do.
Imagine you want to buy a car for $25,000 - but the seller still owes $5,000 in finance on the vehicle.
You'll most likely buy the car for the agreed amount but you'll need to take into account the payout figure for the loan. You will need to write two separate cheques - one to the finance provider for $5,000 and one to the seller for the remaining $20,000 of the purchase price.
It's important that the seller requests a payout quote or letter from their finance provider that is dated and signed. The letter should be sent directly to you before you write the cheques or make any payment.
Once payment has been made, it's important to arrange a transfer of ownership immediately.
Potential risks of buying a car with finance still owing
If you consider how car loans work, it’s worth remembering that the lender uses the car as security for the loan. This means that the loan is applied to the car and not it’s owner, so if you decide to buy a car with finance owing, you’re taking on the loan and any potential problems it may have.
The owner of the car has to repay the loan, that will be you, as soon as you have bought the car. With dealerships, you’ll always be provided with a proof of title but with private sellers, it’s much harder to control and regulations often aren’t stuck to.
In the worst case scenario, you could buy a car with finance owing and end up losing the car completely if the lender repossess it. Your other option is to pay the balance off yourself, but this will include interest and fees that may have been mounting up.
Sadly, if a car has been used as security for the loan, the lender will have ownership rights until the loan is paid off in full.
How to avoid the risks of buying a car with finance still owing
Buying a car with finance owing can be a great option for many people. The important thing is that the arrangement is entirely transparent on both sides. You need the seller to be honest with you, but you’ll also need to check and recheck that everything is as it should be.
If you find out that there is money owing on the car and the seller hasn’t mentioned this, you should walk away from the sale immediately. Any honest seller will mention the amount of finance still owing when you ask them.
You need to check the PPSR to make sure everything is in order. The PPSR is a nationwide register which tracks all the loans held on Australian vehicles and assets. You’ll simply need to put in the vehicle’s registration number to find out the financial status of it.
You should check out the PPSR at various times – when you first go to view the vehicle, and also just before you’re about to buy it. If any last minute changes have been made which you weren’t notified about, you should quit the sale immediately.
Ask for help
It’s really worth getting expert help if you’re considering buying a car with finance owing. Positive Lending Solutions has decades of experience helping people get the right car loan, and our expert team of brokers will be able to immediately identify anything that doesn’t sound quite right.
Give yourself the peace of mind as well as saving time, money, and a great deal of stress by letting our expert team help you to get the right car loan for you.