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How do you sell a car under finance?

Looking to sell your car but still owe money on your loan? Find out your options here.

If you’ve purchased a vehicle using a secured car loan and haven’t paid it off yet, the car is considered ‘encumbered’. This means that it has money owing on it and is still part-owned by the lender. It can be difficult to sell a car before you’ve paid off your loan, but it is possible.

Read our guide to find out your options when it comes to selling an encumbered car.

Can you sell a car that’s under finance?

While you can sell a car that’s still under finance, there are a number of potential issues you will need to consider.

With a secured car loan, it’s the car itself that the loan is taken against. As a result, if you sell the car but fail to repay the loan, the new buyer may find that the lender takes ownership of the vehicle. The buyer must trust that you will pay off your loan in full or else they risk losing the car. This makes your vehicle a less attractive option for potential buyers.

However, it’s perfectly legal to sell an encumbered car and you just need to be upfront with potential buyers about the situation. If you wish to sell your car, you should also notify your lender and explain that you want to pay off your loan.

Most lenders will allow you to sell the car, provided you use the money to then pay off your existing loan. Depending on your loan, you may need to pay additional fees for paying off your loan early.

If you used a different asset as security against your car loan or if you opted for an unsecured or personal loan to help purchase your car, you’re free to sell the car when you wish, but you will still need to continue making repayments until you have paid off your loan.

What do you need to keep in mind when selling an encumbered car?

  • Ideally, you won’t need to sell a car that’s under finance. If you plan on selling a car in the future, it’s best not to have it under finance.
  • The value of a car can drop considerably in a few short years. Consider depreciation when comparing car finance options and how this will affect your ability to resell the car.
  • Generally, your two options are:
    • – pay off the loan and then sell the car, or
    • – sell the car while it’s still under finance.
  • Given the choice, most people wouldn’t want to buy an encumbered car. If you’re selling the car with debt rather than paying it off before selling it, you need to be clear about this as the loan ownership is transferred with the car.
  • You should discuss your options with your lender before selling the car. It can help you understand the conditions of your loan and your options. Your lender may also be willing to readjust the terms of the car loan if it might help you to keep it and continue making repayments.

How to sell a car under finance

If you want to sell a car you still owe money on, you can do so by following the steps below:

  1. Notify your lender. Before arranging to sell your car, you should let your lender know and discuss your options. Depending on the terms of your loan, you may need to pay off the loan before you can sell the car or you may be able to arrange for the buyer to pay your lender directly. Your lender may also allow you to sell your car provided the money you receive is immediately used to pay off the remainder of your loan.
  2. Find a buyer. After you have cleared the sale with your lender, you’re free to find a buyer. You may choose to advertise the car online or in other media, or find a buyer directly. Once you’ve found a buyer, you must also notify them that the car is under finance and explain what they will need to do.
  3. Finalise the sale. Once you’ve agreed a price with the buyer, you can finalise the sale. Both the buyer and lender may request that they arrange the payment directly. You then receive any money left over from the sale, after the remaining loan amount and any early repayment fees, or other charges, have been paid off. If the buyer requests that you organise payment with your lender, you must do so once you have received the money.
  4. Transfer ownership. You should arrange a time with the buyer for them to pick up the vehicle. It is their responsibility to transfer the registration into their name, but you will need to provide them with a proof of purchase document and also lodge a notice of disposal to confirm you no longer own the car.

Questions to ask before selling your car

If you want to sell a car under finance, you should first be able to answer the following questions:

  • How much is still owing on the car? You need to know how much you still need to pay back on the loan.
  • How will you pay back the lender? You need to keep the lender happy by paying back the entire car loan in full, plus any early repayment fees and other costs. Before deciding to sell your financed car, discuss it with your lender.
  • How will you satisfy the buyer? Some people may be hesitant to purchase an encumbered car. You either need to make it very clear that any outstanding debt will be the buyer’s responsibility or that any outstanding finance will be paid off by you.
  • Does my loan allow me to sell the car? If you’re using the car as collateral in a secured loan, you may not be able to sell it until you’ve completely paid it off, depending on the terms of your loan. This is something you should check with your dealer before you sell the car.

What are my other options?

Regardless of your situation, it will generally be easier to sell your car after you’ve paid off your existing car loan. You have a number of options when it comes to paying off your loan.

Pay off the car loan with your own savings

If you have enough in savings, you can use the money to pay off the rest of your loan. Your car will then no longer be considered encumbered and will be easier to sell.

Benefits and drawbacks

  • You don’t need to take on new debt
  • You will eat into your savings
  • You will need to pay any applicable fees or charges for paying your loan off early

Refinance your car loan

If you’re struggling to pay off your loan and are trying to sell your car as a result, it may be worth trying to refinance it to help reduce the cost of your loan. If you find a loan with more-favourable terms, you can use it to pay off your existing loan and then continue to make lower repayments on the new loan.

Benefits and drawbacks

  • You can get a more affordable loan
  • You can switch from a secured to unsecured loan, meaning you can sell your car when you wish
  • Applying for a new loan may affect your credit score
  • You may have to pay fees and charges for ending your existing loan and starting a new loan

Upgrade your car at a dealer

If you were planning to sell your car in order to upgrade to a new one, a dealer may be able to help you do so. You can trade in your existing vehicle to cover what you owe on your existing loan. Then get financing for a better car or downgrade if you’re looking to save money. The dealer will often be able to arrange the payment to the lender on your behalf.

Benefits and drawbacks

  • You can swap for a more suitable car
  • You can cover your existing loan
  • You will be taking on new debt
  • You may be able to get a better price for your car elsewhere
  • You will need to pay any applicable fees or charges for paying your loan off early

Want a better deal? Compare car finance now

Name Product Interest Rate (p.a.) Min. Loan Amount Max. Loan Amount Loan Term Establishment Fee
Simplify Secured Car Loan
6.25% - 12.50%
12 - 60 months
$100 - $500
Eligibility: Must be 18+, a New Zealand resident or permanent citizen and have an income of at least $500 per month.
See how much you could borrow without affecting your credit score.
MTF Finance Secured Car Loan
8.20% - 20.20%
3 to 60 months
Eligibility: Must be 18+, be an NZ citizen, resident or have a work visa, and have a regular source of income.
Secured car loans from $2,000.
FROM 6.99%
The Co-operative Bank Unsecured Personal Loan
6.99% - 19.99%
6 months to 5 years
Eligibility: Be 18+, an NZ citizen/permanent resident, or have a valid work visa.
Floating-rate, unsecured personal loans from $3,000.
Kiwi Car Loans Secured Loan
6.95% - 19.95%
1 to 7 years
$195 - $995 depending on lender
Eligibility: Be 18+, an NZ citizen, permanent resident or have a work visa, and have an income of least $500 per week.
100% online secured car loans from $5,000
Lending Crowd Secured Car Loan
5.03% - 15.44%
3 or 5 years
$450 - $1,450 depending on the amount borrowed
Eligibility: Be a NZ resident/citizen and have a good credit score.
Borrow $5,050 to $200,000 for your chosen vehicle. 100% online with no paperwork or early repayment fees.
CarFinance2U Car Loan
8.95% - 23.95%
1 - 5 years
Eligibility: Be at least 21 years old, have a valid NZ driver's licence and be an NZ citizen or permanent resident.
With a CarFinance2U secured or unsecured car loan you could get pre-approval for your next car in 30 minutes.

Compare up to 4 providers

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