When you purchase a car with a loan, the lender technically owns the vehicle until the finance is fully paid off. But what happens if you want to sell your car while it’s still under finance? Many Australians find themselves in this situation, wondering about the legalities and best ways to handle it. In this blog, we’ll discuss whether it is illegal to sell a car under finance in Australia and the steps you need to take if you want to do so legally.
Understanding Car Finance and Ownership
When a car is purchased on finance, it usually falls under one of the following agreements:
- Secured Car Loan: The lender holds an interest in the car until the loan is fully repaid.
- Novated Lease: A type of salary-sacrificed lease that generally requires the car to be returned at the end of the term.
- Chattel Mortgage: Used mainly for business purposes where the vehicle is the collateral for the loan.
If a car is under finance, it means there is still an outstanding debt on it. This is important because until the loan is settled, the lender has a financial interest in the vehicle.
Is It Illegal to Sell a Car Under Finance in Australia?
The short answer is yes, selling a car under finance without informing the buyer and clearing the loan is considered illegal in Australia. The Personal Property Securities Act 2009 (PPSA) protects buyers from unknowingly purchasing vehicles that have outstanding loans attached to them. If you sell a financed car without settling the debt, the lender may have the right to repossess the vehicle from the new owner, which could lead to legal consequences for you.
However, selling a financed car legally is possible if you follow the correct steps.
Can I Sell a Car Under Finance in Australia? Yes, Here’s How
If you need to sell your car while it’s still under finance, here’s how you can do it legally:
1. Contact Your Lender
Before listing your car for sale, contact your finance provider to discuss your options. They will provide you with a payout figure, which is the amount required to fully settle the loan.
2. Determine the Car’s Value
Find out how much your car is worth in the market. If the car’s value is higher than your loan balance, you can sell the car and use the proceeds to pay off the remaining finance.
3. Sell the Car Through a Private Sale or Dealer
- Private Sale: If selling privately, disclose to the buyer that the car is under finance. You can arrange to pay off the loan using the buyer’s payment before officially transferring ownership.
- Dealer Trade-In: Many dealerships can settle the remaining loan directly with the lender when you trade in your car.
4. Use a Secure Payment Method
If selling privately, it’s best to conduct the sale at a bank or finance institution where the buyer can directly pay off the lender and any remaining amount can go to you.
5. Obtain a PPSR Report
A Personal Property Securities Register (PPSR) check allows buyers to verify whether a car has any outstanding finance. As a seller, providing this report upfront builds trust and transparency.
6. Get a Written Agreement
Always document the terms of the sale in writing to protect both you and the buyer. Include details on how the loan will be cleared and ensure everything is legally binding.
Risks of Selling a Financed Car Illegally
If you attempt to sell a car under finance without settling the debt, you risk:
- Legal action from the lender
- The buyer losing possession of the car
- Damaging your credit score
- Being fined or facing criminal charges for fraud
FAQs for Is it illegal to sell a car under finance?
1. Can I transfer my car loan to the buyer instead of paying it off?
No, most lenders do not allow direct loan transfers. The buyer would need to take out a separate loan, and you must clear your existing finance before transferring ownership.
2. How can a buyer check if a car is under finance?
Buyers can check a car’s financial status by conducting a PPSR (Personal Property Securities Register) check, which shows if the vehicle has any outstanding debt.
3. What happens if I sell a financed car without telling the buyer?
Selling a financed car without disclosing the loan is illegal. The lender can repossess the vehicle from the new owner, and you may face legal consequences.
4. Can I sell my financed car if I owe more than it’s worth?
Yes, but you will need to cover the remaining balance out of pocket after selling the car, as the sale price won’t fully pay off the loan.
5. Is it better to sell privately or trade in a financed car?
It depends on your situation. Private sales may offer a higher price, but trading in at a dealership is often quicker and easier, as dealers can settle the finance directly.
Final Thoughts
Selling a car under finance in Australia isn’t illegal as long as you follow the correct process and ensure the loan is paid off before transferring ownership. Always be transparent with potential buyers, communicate with your lender, and follow the necessary legal steps to avoid complications.
If you’re looking for financial advice on car loans, refinancing, or selling a financed vehicle, feel free to visit Car Finance for Pensioners for expert assistance.
By following these guidelines, you can successfully sell your financed car without any legal troubles and ensure a smooth transaction for both you and the buyer.
