How To Sell Your Car When You Still Have a Car Loan
You can easily sell a car if it's still under car finance by following these steps.
Selling your car under finance?
If your lifestyle has changed since you took out your car loan, you might need to sell your car before the end of your car finance term.
If your car is financed with a 'secured car loan', the lender will have placed an interest over your car on the Personal Property Security Register (PPSR). This means you'll need the lender's permission to sell the car.
Here's what you'll need to do:
- Determine how much you still owe on your car loan.
- Find out what your break fees will be.
- Decide how you'll pay off the loan.
- Provide the buyer with a clear title to the car.
Follow this three-step process for a happy buyer, a satisfied lender, and freedom from your car loan:
1. Determine how much you owe on the loan
The amount that you owe on your car loan includes the balance of your loan, plus any early termination or break fees.
Total Car Loan Amount Owed = Loan Balance + Lender Termination Charges
You may owe more than your car is worth, and if this is the case, you'll need to pay the difference.
2. Decide how to pay off your car loan
There's a few ways that you can pay out your car loan:
Option A: Sell your car
When the sale of your car will cover the remainder of the loan, this is a great option.
Honesty is the key to a smooth transaction.
Tell the buyer that you have finance owing on the car, and inform your lender of your intention to sell. When you find a buyer, you can take a deposit and have the buyer transfer a direct deposit or cheque straight directly to the lender for payment of the owing loan amount.
The lender will then provide you and the buyer with a letter confirming the finalisation of your car finance. You can then meet the buyer, hand over the keys and sign the registration transfer papers.
Option B: Upgrade your car at a dealership
If you are selling because you need a different car, and you're buying from a dealer, you might be able to trade in your car to pay out your car finance.
Tell them how much you owe on the loan, then to secure the sale they'll just need to meet this value with the trade in amount. If your current car is less than five years old, then the dealer should be able to resell the car and make a profit.
If they agree to the trade in, then they will usually make the arrangements directly with your lender for payment of the outstanding finance.
Option C: Pay off your car loan before selling
If you have the funds on hand, you can simply pay out your car finance early, before advertising the car for sale. This means that if potential buyers search for your car on the PPSR, no encumbrance will show up.
You could use a credit card to pay out the loan, but this is only advisable if you will be able to pay the balance in full before the end of the month.
Option D: Refinance the car loan
To remove the lender's encumbrance over your car before you advertise it for sale, you can refinance your car loan.
There's three main options for refinancing:
- Refinance the loan to an unsecured car loan. This will give you a slightly higher interest rate, but it means that you're free to sell the car.
- Refinance the car loan against a car that you own outright already. This has the advantage of allowing you to get a lower interest rate.
- Refinance your car loan into equity that you have on your mortgage or home loan.
With options one and two, you can pay out the loan once the car sells, or choose to keep the cash in savings and pay out the loan over your new loan term.
If you decide to go with option three, you can then put the proceeds of the sale of the car towards additional repayments on your mortgage, so that you don't end up paying a lot more interest during the term of your home loan.
You need to take into consideration the costs of refinancing, including any loan administration fees, as well as the interest you'll pay on the new loan. Talk to a Positive Lending manager to find out which alternative could be the best for you.
3. Selling the car
Once you've chosen how you'll pay out your car finance, you're ready to sell your car.
Tips for setting your sale price
- Find out what your car is worth, based on the year of manufacture, model and the current odometer reading, using a service such as Redbook.
- Factor in what you owe on your car finance.
- Do you have a residual or balloon payment?
- Don't be afraid to set your price a little higher to allow for bargaining room.
Bonus tip: To enhance your car's perceived value in the eyes of your potential buyers, give your car a good clean, and take out any personal ornaments or seat covers so the potential buyer can really imagine the car as their own. Getting a car freshener with the 'new car smell' won't hurt either.
Here's more ideas on how to sell your old car.