How to sell a car with an outstanding loan in Australia
If you bought your car with a secured loan, then selling it isn't quite as straightforward as you might think.
Here's the deal: until you've paid off your loan completely, your lender actually owns your car.
Before you can sell, you'll need to chat with your lender and let them know about your plans, get their approval, and find out exactly how much you still owe. Every lender handles this differently, so understanding their specific process is key.
Here are some common ways that this can play out:
Option 1: Sell to cover your loan balance
Start by getting your exact car loan balance - this is the minimum amount you need from your sale. For example, if you're paying $1,200 monthly with two years left, you're looking at roughly $28,800 to pay off.
You can check sites like Carsales or Redbook to research similar car prices in your area. When setting your price, aim for at least $6,000-$10,000 more than what you owe as this gives you room to negotiate and covers any early repayment fees from your lender.
If your loan includes a balloon payment, contact your lender for the exact break-contract price. This final payment needs to be part of your calculations.
See also: What happens if I can’t pay my car loan?
Option 2: Trade in at a dealership
Trading in your car at a dealership can simplify the whole process, especially if you're looking to upgrade. The Australian dealer market is competitive, and many dealers are keen to meet their sales targets.
Be upfront about your outstanding loan. A good dealer will handle all the paperwork and arrange direct payment to your lender. With used car prices currently high in Australia, you might get a better deal than expected. Get quotes from multiple dealerships, as prices can vary significantly.
Dealers usually manage everything from paperwork to registration transfer and loan payoff, making this option particularly attractive if you want a hassle-free experience.
Option 3: Clear the loan first, then sell
Paying off your loan before selling gives you complete control over the sale process. Here's how you can do it:
Consider a personal loan with a lower interest rate than your current car loan. Many Australian lenders offer competitive rates for debt consolidation. Once you pay off your car loan, you own the vehicle outright and can sell it without complications.
If you have a home loan, using your offset account or redraw facility might work, as these usually have lower interest rates than car loans. Just remember you're converting a short-term car debt into a long-term home loan debt.
The private sale process
There are a few things to consider:
- When selling privately, get a written payout figure from your lender that's valid for at least a few days.
- Consider completing the sale at your bank for immediate fund verification.
- Only accept secure payment methods like bank cheques or direct transfers.
- Don't transfer the registration until after the loan is cleared and get everything in writing. This protects both you and the buyer during the transition period.
Comparing loans
While selling a car with finance owing needs extra planning, it's completely doable. Keep your lender in the loop, keep your costs in mind, and pick the selling method that suits your situation best.
One way you can avoid future difficulties with loans is by getting a loan that’ll work for your situation. To help you with it, you can head on over to our car loans hub and compare providers.
Selling a financed car FAQs
I think my car is unencumbered. What does that mean again?
Unencumbered? Excellent! This means that you did not use your vehicle as security on your car loan or your mortgage, and may have paid for your car with a credit card or unsecured personal loan.
In that case, this page isn’t for you. Sell your car!
Encumbered on the other hand, is just a fancy way of saying your vehicle has some strings attached - it's not fully yours yet. Instead, the financier does, and in order for you to sell you’re going to have to pay off your car debt before you consider selling your vehicle.
Is it legal to sell a financed car?
Even though you aren't technically the owner of a car with an outstanding loan, it's absolutely legal to sell it - provided the financier of your loan has approved of the sale.
If you used something else as security for your car loan - valuable jewellery or art - or used an unsecured loan to purchase your car, you are free to sell it as long as you continue paying off the remaining loan.
I sold my car. What should I do with the money?
If you sell your car privately, it’s super important to transfer the funds to your lender the very next business day in order to pay off what's owing.
Ask the buyer to place a deposit with you and transfer the funds electronically, direct to your lender’s account so that it’s one smooth transaction, and safe for everyone. Handling large sums of cash multiple times is not ideal!
The number one aim here is to clear yourself of debt, so ensure all parts of your loan are cleared - including any early repayment fees or balloon payments. Make sure any extra is set aside for a while, in case any unexpected fees come out of the woodwork!
What paperwork will I need to sell a financed car?
Before you get ahead of yourself and sign over your car, you need to check with your lender that:
- It’s ok to sell your car in the first place
- You know what the final payout amount is
If you’re selling privately, then you will need to ask how long it takes to process the payment and settle the loan after paying it off in full.
Only then should you arrange to meet with your buyer and hand over the keys to their new set of wheels. Remember to hand over the signed registration papers so they can begin the transferring of the name and ownership of the vehicle, freeing you of further responsibility from the vehicle.
If you’re trading-in at a dealership then they will deal with everything from paying your lender off to sorting out the paperwork on your behalf as well.
What is a balloon payment and why is it important to remember?
A balloon payment is a lump sum payment at the end of your car loan. Not all loans include a balloon payment, but you should know if yours does as these can be hefty - up to 50% of the car's purchase price.
The balloon payment reduces your monthly car repayment, with that money then paid in the final lump sum.
Example: You buy a car for $40,000 on a 5 year loan with a 4.67% p.a. interest rate. Without a balloon payment, your monthly repayments cost $748.82. If you and your lender agree on a 25% balloon payment, you are agreeing to take out a loan of $30,000 and pay a lump sum of $10,000 at the end of the loan. This brings your monthly repayments down to $600.53. If you were to sell this car, you would have to factor in the $10,000 still outstanding at the end of your loan.
When you are looking to sell a financed car, it's easy to forget the balloon payment and any fees for breaking contract or paying off the loan early - make sure to look into these before finalising your decision.
Can I sell a financed car privately?
Provided everything else is in order - you have informed the lender and received approval, you are going to be paying off the remainder of the loan, and you know how they want you to do so, you are absolutely able to sell the car via private sale.
Read our guide to transferring car registration to familiarise yourself with the process of changing over ownership. Don't hold onto money from the sale - ideally, the buyer is directly transferring the sale price to your lender, paying off your outstanding balance.
* WARNING: The Comparison Rate combines the lender's interest rate, fees and charges into a single rate to show the true cost of a personal loan. The comparison rates displayed are calculated based on a loan of $30,000 for a term of 5 years or a loan of $10,000 for a term of 3 years as indicated, based on monthly principal and interest repayments, on a secured basis for secured loans and an unsecured basis for unsecured loans. This comparison rate applies only to the example or examples given. Different amounts and terms will result in different comparison rates. Costs such as redraw fees or early repayment fees, and cost savings such as fee waivers, are not included in the comparison rate but may influence the cost of the loan.
^See information about the Mozo Experts Choice Personal Loan Awards
Mozo provides general product information. We don't consider your personal objectives, financial situation or needs and we aren't recommending any specific product to you. You should make your own decision after reading the PDS or offer documentation, or seeking independent advice.
While we pride ourselves on covering a wide range of products, we don't cover every product in the market. If you decide to apply for a product through our website, you will be dealing directly with the provider of that product and not with Mozo.