What you should know about selling a financed car

If you’re wondering whether you can sell a car on finance, the answer isn’t entirely straightforward. The simple reason for that is that you probably don’t own the vehicle outright. In most cases, the lender holds the title to the car until the loan is repaid. As a result, you may not be able to sell the car without first discussing the sale with the lender, who could be concerned about your ability to repay the car loan. Whatever your reason for wanting to sell the car, you should check whether you can at least pay the loan balance through the sale.

How to sell a car that is still financed

There are several factors to consider before you decide to sell a financed car, but you should first consider the reason for selling the car as well as its current market value. If you’re selling to lower or minimise your debts, you’d ideally want to sell the car for a sum large enough to cover the car loan and perhaps also leave you with some cash in hand. This requires estimating the depreciation in the car’s value since you bought it and comparing this depreciated value to the outstanding loan amount.

You can choose to discuss the sale with the lender even before you carry out this estimation. In some cases, the lender may help with evaluating the car’s value and arranging for a sale. However, if you’ve gone ahead with arranging the sale and even identified a buyer, you should be upfront in informing the buyer that the car is under finance. This is especially important if you’re unlikely to have clear ownership of the car until you settle the car loan, as you won’t be able to hand over the car to the buyer until then. Further, you will likely have to arrange to transfer the loan balance to the lender as soon as possible, whether or not you’ve discussed the sale with the lender.

Some strategies used by other people include checking whether the loan can be paid off with savings or taking out a cheaper loan to pay off the balance before selling the car. However, this won’t work for all borrowers and may only be possible in some circumstances.

Can I trade in my financed car for a new car?

After owning a car for a couple of years, and while you’re still making loan repayments, you may find that you want to go in for a newer model. You’d still have to check with your current car finance dealer whether you can negotiate a loan for the new car that takes into account the value of your present car. The dealer you’re buying the car from could also arrange this transaction, but you’ll still need to inform your lender and arrange to repay the loan. By directly approaching the lender, you’ll cut a couple of steps out of the transaction.

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