Can you sell a car under finance?

[Polly Lieberman]

Car finance can be a great way to own a car sooner rather than later, especially if you don’t have the money to buy it outright. Selling a car under finance can be more difficult particularly if your loan isn’t fully paid off at the time of sale. If you are planning to sell a car that still has car finance owing, it is important to understand the ins and outs, so that you can successfully sell your car whilst it is still on finance.

When trying to sell a car under finance, what it really comes down to is how a car loan is structured. Most car loans use the car being financed as security against the loan in the event you don’t pay your car finance repayments. This means if you fail to make the repayments as required, the lender can take possession of your car and sell it to regain the money you owe. In some cases, a car lender will allow you as the borrower to swap one car for another, but often the lender will require the existing car loan to be paid off and closed if the car in question is sold.

When a car is under finance or ‘on finance,’ it usually means there is an outstanding car loan against it. With a secured loan the loan is applied to the car, not the buyer. As the buyer, you are responsible for repaying the car loan, but because the car forms the basis of the secured loan, the outstanding balance will always be against the car itself. This is known as an encumbrance.

If your car loan is unsecured, meaning the car is not being used as collateral on your loan, you can sell the car without any restrictions as the car is not being held as security against the loan. You will however be required to maintain your loan repayments if the sale price does not fully cover paying out the loan. Most car loans tend to be secured which can be harder to sell under finance.