Often enough, we find the process of selling a car particularly daunting. Not knowing whether our expectations are in check with the market, or if we’ll find a buyer before an important deadline. And if your car is currently under finance, then you may also have another headache on your hands.
After all, if the car you are looking to sell does not actually belong to you, then how can you sell it? Well, thankfully, the law isn’t that black and white when it comes to financed cars. So although the process will be a little more complex than normal, you can still sell a financed car just as you would with any other vehicle.
Why is selling a financed car more difficult?
The reason that it is more complex to sell a financed car is because of the security the car forms as part of the car loan. The car is held as collateral such that, if the motorist falls behind on payments, the financier has the right to repossess the car and sell it in order to cover the balance of the loan.
If there is a shortfall, you are still liable for the remaining debt owed under the loan. In some instances you may hear the term ‘encumbrance’, which means that there is a claim on the asset that does not restrict its right to be transferred to another party. Therefore, whether your car is encumbered or not, you can still sell the vehicle, but you must speak with the financier first when the car is encumbered.
Clearing the debt
Once you’ve decided that you would like to sell a car that is under finance, you will need to obtain instruction from the lender as to how the debt will be paid off. Because you will almost certainly be ending the loan earlier than scheduled, there is a possibility you will need to pay early termination fees. Refer to your existing loan or speak with your financier for specific details, as each situation will involve particular costs tied to your contract.
Where you are unable to clear the loan despite selling the vehicle, your financier will need to be a party to the deal to complete the transaction with the prospective buyer. In that instance, you will not receive any money from the sale of the car, as the buyer will make payment directly to the lender. As a seller, you will also be liable for any difference between the market value and a higher loan value, where it becomes your responsibility to settle this difference.
One last thing to be wary – make it clear to the prospective buyer that the car is currently encumbered. Of course the other party holds some responsibility to check this for themselves, however, if they discover it from their own research, without you telling them, they may also begin to wonder what other facts about the car could be hidden or untrue.
The Fincar team is here to help you with all your financing needs. Contact us today to help arrange your next car or equipment loan.