Life has a habit of getting in the way, and you may find that your car no longer meets the needs of your changing lifestyle. You may be asking yourself the question of “Can I sell a car with a loan on it?” OR perhaps you’re asking yourself “Is it illegal to sell a car under finance?”. Well, we have some good news for you.

Selling a car under finance is perfectly legal. It is also not difficult, though you do need to be aware of a few complications. When you take out a car loan, the loan is applied against the car itself – not you as an individual. If you fail to meet your payment obligations, the lender can repossess the vehicle in order to recoup the cost of the loan. Any car which has money owing on it is referred to as an ‘encumbered vehicle’. Prudent buyers will always run a PPSR check prior to purchasing a vehicle, and they need to be assured that they will not be lumbered with the cost or risk of having the car seized.

To help you secure a quick, hassle free sale that keeps the buyer and lender happy, we have prepared a blog post outlining 5 things to keep in mind when selling a financed car. We hope you find this helpful.


  1. Consult Your Bank/Lender

Before you even begin to think about selling your car, you will need to speak to your bank about your options when it comes to paying off your car loan. Generally, there are two options:

  1. Pay out the loan early
  2. Arrange for your financial institution to oversee the sale and accept payment on your behalf

Option 1 will depend on your finances at the time, but it is often the quickest way to ensure a sale. Be aware that many lenders will apply administration fees, break fees and cost-recovery fees.

If your finances don’t allow you to pay out the vehicle yourself, option 2 is well worth considering. Rather than you receive payment upon successful sale of your car, the bank will receive full payment and use the money to pay out the loan.

  1. Be Upfront and clear in your advertisement

When advertising your car, you need to be upfront about the fact that the car still has finance owing. The last thing any buyer wants is to arrange an inspection and then be told that the car is encumbered, as this will immediately raise red flags. Make sure that you let the buyer know this detail beforehand.

  1. Clarify Finance Arrangement prior to handing over the keys

As the vendor it is important that you know exactly what will happen with the outstanding finance, but it’s just as important for the buyer and lender too. Written documentation stating how the loan will be managed should be kept, and each party should have a clear understanding of financial responsibility. No matter which way you go about it, the lender needs to be paid in full, and the buyer needs to know exactly who will be responsible for the debt.

In some cases, private buyers may be willing to take on the debt. However, in most cases they will expect a sale price that is significantly lower than market value.

  1. Secure Loans VS Unsecured Loans

Secure loans involve using the car as security, whilst unsecured loans do not have any security at all. For this reason, these types of loans usually have higher interest rates and stricter eligibility criteria to account for the lenders higher level of risk.

There is one major benefit of having an unsecured loan – it allows you to sell the car whenever you choose. Whilst you will still be required to pay off the loan, you do not need to jump through hoops and consult with your lender. Your vehicle is not encumbered, and the buyer is not at risk of repossession.

You will need to establish whether you took out a secured or unsecured loan prior to selling your vehicle.

  1. Selling Privately VS Selling to a Dealer

We all want to achieve the best price for our cars, but selling privately is not always the best option when a vehicle is still under finance. For many sellers, the administrative hassle can be a bit too much. Selling to a dealer will make the process as seamless as possible, as they will guide you through the process and ensure a quick and easy sale.

You can also consider selling to us. Simply ask your finance company to provide a “payout letter” and present this to us during inspection, and we’ll handle the rest.


Save the Hassle – Sell with I Sold My Car

If you’re ready to sell your financed car but would prefer to skip the hassle of dealing with private buyers, please contact us today. We buy cars of all makes and models and are happy to handle any outstanding finance matters. No matter how you choose to sell, we hope you have found this article helpful. We wish you the best of luck with the sale of your vehicle.