What is a Encumbrance Car and the risk of buying it
An encumbrance car is a vehicle that has finance on it meaning that the car was bought on a loan and it hasn’t been repaid fully. It’s different from taking a loan from the bank and buying the car – when the car itself is financed it becomes a security loan.
The loan applies to the car, not the buyer. A vehicle will be encumbered regardless of its owner, until the loan has been repaid in full.
There is no law that requires the car owner to disclose the encumbrance when selling the vehicle and for this you should always do a PPSR check to find out if it is an encumbrance car.
The goal of many buyers is to find a car that is cheaper than the market price. On the other hand, it is this factor that should alert. Should you buy an encumbrance car?
What are the risks of buying an encumbrance car?
The main risk that needs to be mentioned is the fact the car can be repossessed by the creditor if the instalments aren’t paid by the new owner. As the new owner of the vehicle, the loan on the car is now their responsibility. People often search sell my car to sell their car and it often involves an encumbrance vehicle.
There’s not much to do in this scenario where it’s the buyer’s responsibility to check whether the car has encumbrance on it or not.
It’s a bargain deal, worth the risk?
If you have come across a great deal and you don’t want to miss out on the opportunity, there are few things you can do to negate the risk.
First thing to do would be meeting with the current owner of the vehicle and trying to see if they seem OK to do business with. If you feel like what the other person saying is too good to be true, it probably is.
Get as much information about the encumbrance as you can. Find out who the creditor is and contact them as well. Find out how much the monthly payments are and how much of it is left. If the owner is willing to deduct the remaining payments from the car’s total price, you can workout a deal.
Do a PPSR report in any case to make sure you have got the right information about the vehicle. It could have other problematic titles other than an encumbrance such as stolen or written-off.
What to do if the car is repossessed?
When you buy the car you buy it with any existing loans – encumbrance on it. As mentioned above, the seller doesn’t have the obligation to tell you about the encumbrance.
It’s, however, possible to take the matter to the court if you weren’t aware of the encumbrance at the time of buying. What the court will decide is entirely depended on your specific case
How do I find out if the car is encumbered?
Conducting a PPSR check is the most reliable way of checking for encumbrances and other titles the vehicle might have. It only costs $2 per check and gives you all the important information about a vehicle. On top of that, you can ask the owner of the vehicle as well.
However, no matter how trustworthy the person looks, for your own safety, don’t believe what they say with 100% certainty.
When you are conducting a PPSR check, you will receive a document that outlines one of three options: no security interest, a single registration or multiple encumbrance registrations. Moreover on our other blog we have explained to keep 6 things in mind before buying a car which provides expert advice on buying a car.
The ideal situation is it has none of those three meaning the car is free of any type of encumbrance or financial issues.
It would be a very good idea to keep the PPSR document around so that if anything happens, you can prove that the car had no encumbrance when you bought it. It’s a very unlikely scenario, however, it is better to be safe than sorry.