Can I buy a car that is still on finance?

When you’re shopping around for a used car, it’s recommended that you check to see if the vehicle you intend to buy still has financing owing. So, what happens if your ideal car is still on finance?

It is possible to purchase a car that has financing owing, but you may have to jump through a few more hoops than you otherwise would. Let’s explore your next steps and your options when the car you want to buy still has a finance amount remaining.

Purchasing a car with finance owing

In Australia, the onus is on the buyer to find out prior to purchase whether there is financing owing. The debt is typically secured to the vehicle, so if you purchase a car with financing owing without ensuring it’s paid off ahead of time, this debt may be your responsibility. This is why it’s crucial you do your due diligence.

• Do a PPSR Search

Firstly, it’s important to be aware of not just financing owing when purchasing a car, but other risk factors like whether the vehicle has been stolen or written off by an insurer. It’s not uncommon for a private seller to try and offload a written-off car, or a car secured to an outstanding car loan amount. Arming yourself with as much information as possible is a great place to start

You can ask the seller for this information, but it’s still recommended that you check yourself through the Personal Property Securities Register (PPSR). This is a government website that notifies Australians of security interests in personal property.

A PPSR search can advise of information recorded against the Vehicle Identification Number (VIN) or chassis number, including the make, model, and colour, but more importantly:

• If the vehicle has outstanding financing
• If the vehicle has been written off by an insurer
• If it has been stolen
• If it is part of the faulty compulsory Takata airbag recall

A PPSR will not tell you the amount of finance owing on the vehicle, the vehicle ownership history, any outstanding fines, or factors like the odometer reading. You will be given a search certificate when you pay for a PPSR search as part of your legal records for the car.

It is recommended that you do a PPSR search on the day, or the day before, you plan on purchasing the vehicle. The PPSR website advises that the “closer you search to the time of purchase, the better”.

• Confirm financing from their lender

It’s normal to feel nervous about purchasing a vehicle with financing owing, so it may be worth requesting a dated payout quote or letter from the seller’s car financer of exactly how much is owing on the vehicle. If a seller is not willing to contact their lender to do this for you, it may be worth considering another vehicle option.

It is not your responsibility to pay off someone else’s car loan. However, the payment you make for the vehicle itself is likely to go towards the outstanding loan amount. This means the seller may need to receive payment from you first to pay off the vehicle finance.

• Secure your payment

As you may need to pay for the vehicle before the seller can pay off the car loan, you’ll want to choose the most secure payment option that offers you peace of mind.

Say that the used car you intend to buy is worth $10,000, and the amount owing on the car loan is $4,500. One option is to make two payments to the seller:

1. A payment for the amount owing on the loan ($4,500). The seller will then provide you with an updated statement from the financer immediately, to confirm that this has been paid in full, and no debt is still outstanding on the vehicle.
2. A payment for the remaining purchase value ($5,500).

Alternatively, you can speak to the financer directly, with details on how much you intend to pay for the vehicle. You can pay this $4,500 to the financer and receive direct confirmation that this has been paid in full. Then, you can pay the remaining value ($5,500) to the seller directly.

• Transfer of ownership

At this stage it is recommended that all parties arrange the transfer of ownership for the vehicle. In NSW, for example, when purchasing a registered vehicle, ownership must be transferred within 14 days of purchase, or you may pay a late transfer fee

The seller should advise Transport NSW by submitting a notice of disposal for the vehicle. If they haven’t done this, as the buyer you can still complete the transfer of ownership at your local Service NSW Centre. Just be sure to do so within 14 days of purchase to avoid paying the late transfer fee.

Compare car loans in Australia