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Is It Legal To Sell A Car If I Owe Money On It In Australia?

If you’re in Australia and need to sell a car that’s still under finance, you might be wondering about the legality and processes involved. Selling a financed car can seem hard, but with the right steps and information, it can be as simple as talking to your lender about moving forward.

Is It Legal to sell car on finance?

According to Australian Consumer Law, it is in fact legal to sell a car if there is money owing on it. The sell is however, required to disclose any financial encumbrances to the buyer. However if they do not, there is limited legal action that can be taken against them.

Understanding Car Encumbrance

When a car is under finance, it is usually encumbered, meaning there is money owed against it. For example, if you took out a $20,000 loan to purchase the car and still owe $10,000, the car is encumbered by that amount. The financial institution holds the car’s title until the loan is fully paid off.
Not all financing creates an encumbrance. If you used an unsecured loan, such as a personal loan or credit card, the car itself is not at risk of repossession by the lender. This distinction is crucial when selling your vehicle, as a car without an encumbrance is easier to sell.

Methods To Sell An Encumbered Car

We’ll be listing the methods you can you can use to legally sell your encumbered vehicle as well as rating them out of 10 for difficulty.

As an experienced wrecker, we’ve advised many of our customers on how to sort out their financed car before they can sell to us.

Before you start:

Discuss Loan-Settling Options with Your Lender

Contact your lender to inform them about your intention to sell the car. Some lenders may have specific contract terms requiring the loan to be fully settled before the sale can proceed.

Pay Off The Remaining Loan Before Selling The Car

Request a “payout letter” from your lender. This document will detail the exact amount needed to clear the car’s title and how to pay it. Also, inquire about any fees associated with early loan repayment.
The main issue here is having enough cash on hand to pay off the entire loan in addition to the exit fees likely to be charged by the lender.
Difficulty: 2/5

Pay Off The Loan After Selling Your Car Directly

Inform the buyer that the car is still encumbered and that you plan to use the sale proceeds to immediately pay off the remaining balance. After settling the loan, provide the new owner with documentation proving the vehicle is no longer encumbered.
The only trouble is convincing the buyer to take on the risk of buying an encumbered car from you without any guarantees.
Difficulty: 5/5

Sell Your Car through Your Lender

In some cases, you can sell your lender can be part of the sales process. The lender will require that the buyer pays them directly. This ensures that the loan is fully repaid before ownership of the car is transferred. The lender will provide a “payout letter” that details the exact amount needed to settle the loan and clear the title.

Once the buyer pays the lender, the lender will release the enumburance on the car. This process officially clears the title, allowing the buyer to register the vehicle in their name.
If the sale price of the car is less than the payoff amount, you will need to cover the difference to fully settle the loan.

While this method is easier than promising to pay off the loan after the sale, the extra effort and compilation involved is likely to turn off potential buyers.
Difficulty: 4/5

Trading In and Financing a New Car

If you’re planning to sell your current car to purchase a new one, discuss financing options with a car dealer. They may offer to pay off the existing loan, take your old car as a trade-in, and sell you a new car with a fresh loan.
However, keep in mind that trading in usually offers less money than selling privately.
The best-case scenario is the dealer providing a great trade-in price, paying off the existing loan, and getting you into a new, more efficient car at a competitive interest rate. Always compare financing options to ensure you get the best deal.
Difficulty: 1/5

Alternative Options

You can also consider these alternatives:

  • Sell to a Cash for Cars Company: These companies specialise in quick, hassle-free purchases. They can work with your lender to handle the loan payoff and offer immediate payment.
  • Refinance: If you want to keep the car but need lower monthly payments, refinancing the loan could be a viable option.

We Can Help You Get Rid Of Your Car

For assistance with selling your financed car, contact us at 0432 022 021. We’re here to help make the process as smooth as possible.

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