How to sell a car with an outstanding loan

You’re moving overseas, upgrading your car, or just feel like going car-free for a while and you need to sell your car. But you’ve financed it for 5 years and you’re only just into your third! Not to worry. We’ll help you understand what your options are when it comes to selling your car with money still owed, so that you can get on with getting the freedom you need. 

But before we do that, just a quick and very important note to consider: when there is finance outstanding on your loan, until you pay that off in full, the lender technically owns your car. What does that mean to you? Well, you’ll need to give them a call and let them know what your intentions are, whether it’s through a private sale or through a dealer. They will also tell you what the closing balance is as well as how they’d like you to finalise the loan. 

Now let’s get on with Mozo’s tips on selling your car with an outstanding debt. 

Option 1 : Selling your car to pay the balance owed 

Find out how much is owed. Yes you pay $1200 per month on repayments which means you pay a little over $14K a year. This brings the balance to a total of $28,800 for the two years that remain, with no more to pay because you opted for the larger amount and not the balloon option. You follow? If you feel confident that you can sell your car at at least $28,800 then you’re winning. 

Before you list your car, do your research on your car’s make, year and model, and if it’s selling for $6-10,000 more than what you owe, list it at that. Placing a higher price tag allows for bargaining room and making your buyer feel like they’re snapping up a real treat. You may even profit a tiny bit too. Will your lender charge you a fee for paying off your loan early? This is something you may want to factor into the price you sell your car for. 

If you have a residual bubble payment in your car loan contract, then you’ll need to call your lender and ask what the break-contract price will be. There’s more where that came from. We cover more about car loans on Mozo here

Option 2 : Upgrading with a dealer 

If you’re salivating over a new car and your dealer wants to make their daily budget, they will think long and hard (5 minutes of thinking) about how they can convert you from browser to buyer. All they have to do is offer you the right trade-in amount to cover your outstanding loan. 

Just be completely transparent about how much you owe so that they can cover you properly. After all, if your car is less than 5 years old then it makes for a safe resell where they should be able to make a profit. And don’t worry. The dealer usually arranges payment and pays your debt direct to your lender. No sweat. 

Option 3 : Paying off your car loan before selling it 

If you absolutely must sell your car before your car loan is up, then there are some things you may want to consider to make the process easier. For example, have you thought about finalising the debt yourself before selling it? It might make for an easier transaction while offering a hassle-free experience for you and the buyer. You could:

  • Take out a personal loan with a rate that’s lower than you’re currently paying 
  • Use your credit card, preferably with a lower rate than what you’re paying now
  • Utilise your savings 
  • Use equity in your home

Although these scenarios are not exactly ideal, if you line your credit right and repay your loan with a lower credit rate than you’re currently paying then you’re going to come on top. The secret is not to drive yourself deeper into debt, so control any unnecessary spending sprees where you can. 

Outstanding loan frequently asked questions and answers 

I think my car is unencumbered. What does that mean again? 

Unencumbered you say? Sweet. That means that you did not use your vehicle as security on your car loan, your house mortgage to pay for it and may have paid for your car with either a credit card or unsecured personal loan. So, this page isn’t for you. You’re doing alright, and you’re going to find less hitches in selling your car. 

Encumbered on the other hand, is just a fancy way of saying you don’t really own your vehicle outright, the financier does and in order for you to sell you’re going to have to come up with the goods to pay off your car debt before you even consider selling your vehicle. 

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. It would be completely fraudulent to do anything other than keep it under the mattress until the next day you can safely deposit the money into your bank or lender account. 

In fact, what’s the rush? Ask the buyer to place a deposit with you and transfer the funds electronically and direct to your lender’s account so that it’s one smooth easy transaction, and safe for everyone. Handling large sums of cash is not ideal in anyone’s world. Remember the deposit? Make sure you transfer that as well. There are strictly no spending sprees allowed, no matter how tempting or how much you will ‘pay it back’. After all, you’re number one aim is to clear yourself of debt not drag yourself in deeper. 

What paperwork will I need? 

Before you get all pen-happy and sign over your car, you need to check with your lender that: 

  • It’s ok to sell your car in the first instance 
  • 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 rego 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. 

Tip 101 Keep it clean

You know what we mean. If you want a better chance at selling your car, you’re going to need to take it to the car wash. If you don’t want to spend money on getting it professionally cleaned, then spend time on it in making it sparkle with the garden hose and your vacuum cleaner. May take a bit more than that, but you get the drift. A clean car adds value and shine to your car and can easily influence an eager eye.