- Not all lenders will automatically agree to let you sell your car if it's under finance, as they have a financial interest in the vehicle. Getting approval from your lender before proceeding with the sale is essential.
- Most lenders will be open to discussing options, but their consent is crucial to legally transfer the ownership free from finance. You'll need to talk to your lender to understand their specific requirements and process before advertising your car for sale.
Selling Your Car with Outstanding Finance - The Definitive New Zealand Guide
Our comprehensive guide to selling a financed car covers loan types, settlement statements, buyer questions and more to ensure a transparent and easy sale.
Updated 21 March 2024
Summary:
- This guide is published to help anyone who wants to sell their car with outstanding finance and know what's involved in the process.
- The sections below clarify the different types of car loans and their implications on the sale, emphasise the importance of understanding and managing your settlement statement, and offer practical advice on preparing your vehicle for sale.
- Potential buyers will come with questions and concerns about a car listed for sale with finance owing - we provide insights and common responses to handle such queries.
- We also detail the steps to finalise the sale, highlight critical post-sale considerations, and share warnings and tips to ensure sellers get the best price for their car.
- Important: Buyers conducting a background check on the vehicle will discover any existing debts attached to it. Similar to physical defects like dents or worn tires, these financial obligations will usually influence their decision to purchase.
Know This First: Selling a Car with Outstanding Finance - Download Our Checklist
To make the process easy to follow, our checklist is best downloaded and printed. It provides a structured approach for sellers, ensuring they cover all essential aspects of the sale process. We cover:
- Understanding Your Loan Type
- Obtain a Settlement Statement
- Understand the Settlement Statement
- Prepare the Car for Sale
- Advertise the Car
- Handle Buyer's Concerns
- Finalise the Sale
- Post-Sale Tasks
Important: Will my lender agree to let me sell my car with outstanding finance?
Car Loan Expert Founder Christopher Walsh shares his insights on selling a car with finance owing:
"Navigating the complexities of selling a car with finance owing can be challenging, but it's crucial for a transparent and legal transaction. As sellers, understanding your loan type – secured or unsecured – shapes the entire process. A secured loan means your car is collateral, potentially complicating the sale if handled incorrectly.
You'll need to understand your settlement statement; this document is your roadmap to understanding exactly what's owed and the deadline to pay it before more interest is added. Selling a car with finance will attract questions from potential buyers - make sure you're transparent and proactive throughout the sale so that you answer them without confusion.
Each step, from loan identification to finalising the sale, demands attention and accuracy. This guide is designed to walk you through these steps, ensuring a successful and stress-free sale".
Understanding and Managing Your Car Loan Type Before Selling
Selling your car while it's still under finance involves a clear understanding and settlement of your loan. We break down this process into three key steps, ensuring you know the exact amount owed and the deadline for repayment coinciding with the sale of your car. Each step is detailed to provide a comprehensive approach to smoothly finalise your loan obligations during the sale.
Step 1 - Know Your Loan Type:
When selling a car that's still under finance, it's crucial first to understand the nature of your loan. There are two types of car loans:
1. Secured Car Loan: If your car loan is secured, your car serves as collateral. This means that if you fail to make payments, the lender has the right to repossess the vehicle - our guide to repayments has further information.
The implications when selling a car with a secured loan can be more complex than an unsecured loan (see below). The buyer will likely want assurances that the loan will be cleared, so the car is no longer at risk of being repossessed after they've bought it.
2. Unsecured Car Loan: An unsecured loan does not tie your car or any other asset as collateral. This is less risky for you but more so for the lender. Unsecured car loans are much less common in New Zealand, but some drivers have managed to arrange them.
Know This: Selling a car with an unsecured loan is simpler regarding ownership transfer. However, you still need to ensure the loan is paid off or continue making payments as agreed to protect your credit profile.
Once you've confirmed with your lender if your loan is secured or unsecured, you can continue the sales process.
Step 2 - Obtain a Settlement Statement:
You need to know exactly how much you must pay to settle your car loan, meaning paying it off in full. This is where a settlement statement comes into play.
The first step is to contact your car lender and request a settlement statement. You can call them and ask, but ensure you get the statement in an email and not a verbal number over the phone. You'll need to give details like your account number, car registration number, and other related information.
Step 3 - Understand the Settlement Statement:
You can see an example of a settlement statement here - we have prepared this in the style and format commonly used by lenders throughout New Zealand.
The important details include:
- Loan Balance: This is the remaining balance on your loan, taking into account any interest and fees applicable.
- Additional Fees: Be aware of any early repayment fees or penalties that might apply if you're paying off your loan before its scheduled end date.
- Payment Deadline: This is the date the total amount listed on the settlement statement must be paid to avoid any extra interest being charged.
With this statement, you're now ready to advertise the car to buyers while being upfront about the fact it has finance owing.
Common Questions Asked by Sellers when listing their car:
1. What if my car takes longer to sell, and I pay after the settlement date on the settlement statement?
Additional interest or fees will usually be added, increasing the total amount you owe. It's important to contact your lender immediately if you anticipate a delay in payment - they will provide a new settlement statement and discuss potential penalties.
2. What if my car sells for less than what's owed per the settlement statement?
You are still responsible for paying the difference, known as a 'shortfall'. You'll need to arrange alternative financing or use personal funds to cover this amount. Speak with your lender to discuss options, such as a payment plan for the shortfall.
3. Can I transfer the loan to the buyer when they buy the car?
No - car loans are typically tied to the individual who initially took out the loan. The loan must be paid off, and the security interest must be cleared before ownership can be transferred to the buyer.
Preparing Your Car for Sale
Before listing your car for sale, ensure it's in the best possible condition. This may involve servicing the vehicle, making necessary repairs, ensuring it passes a WOF, etc.
Clean the car thoroughly, both inside and out. A well-presented car can significantly influence potential buyers' perceptions and the final sale price. Consider professional cleaning or detailing if necessary.
MoneyHub's detailed guide on preparing a car for sale has extensive details about preparing a car for sale suggests several key steps:
- Car Service: It's recommended to service the car to assure buyers of its maintenance and keeping service receipts is beneficial.
- Car Registration: Ensure the car is registered and inform the buyer if the car is unregistered.
- Road User Charges (RUC): Pay any due RUC for diesel vehicles, as selling with overdue RUC is an offence.
- Warrant of Fitness (WOF) or Certificate of Fitness (COF): Inform buyers if the WOF or COF is over a month old.
- Selling 'As Is': Be aware of potential liabilities under the Contract and Commercial Law Act if selling a car with undisclosed issues or debts.
- Setting the Sale Price: Research the market to set a competitive price, considering the car's make, model, age, and condition.
- Car Valuation Tools: Use valuation tools for free to get an estimate.
Maintaining Honesty and Transparency with Buyers
Being upfront about the car having finance owed is essential to building trust with potential buyers. For many buyers, dealing with the risks around cars and debt is a risk they won't take. You'll save time and hassle by advertising the car with finance owing to ensure you only work with interested and serious buyers. It also demonstrates your integrity and honesty, which are crucial in any car sales transaction.
Interested buyers will likely have several risks and concerns which you need to address, including:
- The risk of Repossession: If the loan isn't cleared after the sale is completed, it's almost certain the lender will repossess the car from the new owner, given the loan remains outstanding.
- Unclear Title: The buyer could face issues with the car's ownership if the loan isn't settled, hindering their ability to own or resell the vehicle legally.
- Financial Liability: Buyers might be wary of inheriting any financial liabilities or hidden costs associated with the vehicle that often come with car loan contracts.
Know This: All of these risks need to be thought about in advance and managed. Buyers also ask questions about the financing - we list common questions below and an example of our 'best response' to help you prepare and sell your car with confidence.
Common buyer questions (and best responses)
1. Is there an outstanding loan on the car?
Best Response: "Yes, there is an outstanding loan on the car. I can provide a settlement statement from the lender, which details the remaining balance. This loan is registered as a security interest on the PPSR, which will be removed once the loan is paid off".
2. How will the loan be paid off?
Best Response: "We can arrange for the payment to be made directly to the lender to ensure that the security interest is discharged and the loan is paid off in full. We will do this together simultaneously at your bank if you prefer".
3. Can I see the settlement statement?
Best Response: "Yes - I can provide you with the current settlement statement. It outlines the exact amount that needs to be paid to clear the loan and remove the security interest from the PPSR".
4. What assurances can you give that the loan will be cleared?
Best Response: "Upon payment to the lender, they will issue a discharge of the security interest, which can be verified on the PPSR. This will confirm that the loan has been paid off and the security interest has been removed, allowing for a clear transfer of the vehicle's title".
5. What happens if the loan isn't cleared by the time of purchase?
Best Response: The sale process includes clearing the loan at the same time as the ownership transfer. We will do both simultaneously; I recommend doing it at your bank so it's taken care of immediately.
Finalising the Sale and Clearing the Loan - Best Practice and a Practical Approach:
A Car Loan Expert user shares their experience:
"The process was straightforward when I bought a car with finance owing (from a private sale). I met the seller at my bank, ensuring transparency. At the bank, I completed the payment transfer to the lender.
After the transfer, I provided my identification, in this case, my Driver's License, to the seller. We then proceeded with the official vehicle registration change, following the government process outlined at NZTA - Selling a Vehicle. This approach ensures that the payment and ownership transfer are visibly confirmed."
An alternative option:
- For sales under $2,500, you may consider using an escrow service. Trade Me offers such a service, acting as an impartial third party.
- The buyer pays the escrow service, which then holds the funds securely. The seller only receives the payment once the buyer has taken possession of the vehicle.
- This escrow arrangement significantly reduces the risk of financial loss or fraud for both parties. It offers peace of mind, ensuring that the transaction is completed to the satisfaction of both the buyer and the seller.
Post-Sale Steps and Considerations
Once you've sold the car, there are still a few final tasks to ensure the buyer is taken care of. This includes:
- Sending all relevant records to the buyer: If you haven't shared these already (as part of the sale process), this includes the vehicle's service history, Warrant of Fitness (WOF), and other useful documentation.
- Proof of Settlement: Provide the buyer with a copy of the settlement statement and proof of payment to the lender. This documentation is crucial for the buyer to have confidence that the loan has been cleared and no outstanding financial obligations are associated with the vehicle.
- Release of PPSR by the lender: After loan settlement, verify on the PPSR that the lender has discharged the security interest (doing this has a small charge of around $2). If the security interest has not been removed, follow up with the lender and ensure they complete the necessary steps to discharge the interest, especially since full payment has been made.
- Send a confirmation that the loan is closed: After the buyer has made the loan payment, request a formal closure statement or confirmation from the lender. This document serves as an official record indicating the complete closure of the loan.
- Handling Overpayments: In cases where the buyer makes a single payment exceeding the loan amount, immediately contact the lender to arrange a refund of the excess amount to your account. This scenario might occur if the buyer prefers to avoid splitting payments when the sale price exceeds the loan balance.
Frequently Asked Questions
Are there alternatives to selling my car if I can't afford repayments?
If you're struggling with repayments but don't want to sell your car, consider options like refinancing the loan for a lower interest rate or extending the loan term for smaller payments. Our guide to hardship applications has further details.
Can I sell my car to a dealership or trade it in if it's still under finance?
Yes, you can sell your financed car to a dealership. The dealership will typically handle the payoff of your loan as part of the transaction. However, ensure you understand how they manage the loan payoff and any potential impact on the sale price, as you want to make sure you get a fair deal and don't take a discount because of the extra work associated with the loan.
Will my credit history be affected if I sell my car for less than the amount owed?
Your credit history could be impacted in cases of a shortfall - where the sale price doesn't cover the loan amount. This situation is more common with unsecured loans, as lenders typically won't release the security on the car if money is still owed. If you're unable to cover the shortfall, it might lead to a default on your credit history. To avoid problems, you must discuss potential shortfalls with your lender beforehand to explore solutions before your credit profile is damaged.
How should I deal with a nervous buyer?
It's common for buyers to be apprehensive about purchasing a financed car. Here's how you can address their concerns:
- Inform them about the process of buying a car with outstanding finance. Explain the steps you will take to ensure the loan is cleared.
- Show them the settlement statement and correspondence with the lender.
- Be open about every aspect of the sale, including potential risks and how they are managed.
- Be patient and ready to answer all their questions. However, if they remain uneasy, looking for another buyer more comfortable with the process might be best, as some people just won't be convinced and dealing with them becomes a waste of time.
What if I have trouble finding a buyer willing to deal with a financed car?
Selling a financed car can be challenging as New Zealanders often shy away from the hassle and risks of buying a car. If you're struggling to find a buyer, there are actions to take:
- Advertise Widely: Use multiple platforms like Trade Me and AutoTrader to reach a broader audience.
- Highlight the Car's Value: Emphasise the car's features, condition, and unique selling points.
- Be Flexible: Consider lowering the price or being open to negotiations.
- Get an appraisal: Turner's offers 30-minute no-obligation appraisals with 20 branches throughout New Zealand.
Can I get a new car loan if I have existing finance owed on my current car but plan to sell it?
Yes, obtaining a new car loan is possible even if you have existing finance on your current car and are planning to sell it. This scenario is common and can be managed with careful planning.
When you apply for a new car loan, the lender will assess your financial status, considering your current vehicle's outstanding balance. It is important to inform the lender of your plan to sell your current car, as this information is crucial for evaluating your loan affordability and creditworthiness.
When selling your current vehicle, consider the timing and expected sale price carefully. The money you receive from the sale can be allocated towards settling the existing loan. If the selling price fully covers the outstanding loan balance, this will facilitate a smoother financial transition to your new vehicle. If the sale does not cover the entire loan amount, resulting in negative equity, you will need to address this shortfall.
Warning: Although obtaining a new car loan while planning to sell your current vehicle (with outstanding finance) is possible, it can be expensive and stressful. Combining debts or transferring negative equity into a new loan often increases debt and ongoing repayment obligations.
The debt will only decrease once the current vehicle is sold and its associated loan is fully repaid.
What happens if the remaining balance on my car loan exceeds its current value?
It is not uncommon for the settlement amount on a car loan to be higher than the car's current market value, especially if the car finance was secured within the last 6 to 18 months. This situation often occurs due to the depreciation of the vehicle's value over time. It may be further impacted if additional costs, such as optional insurance policies like GAP (Guaranteed Asset Protection) and MBI (Mechanical Breakdown Insurance), were incorporated into the original loan amount.
In such cases, the outstanding loan balance exceeding the vehicle's value represents negative equity. This means that even after selling or trading in the car, you would still owe money on the loan. You need to pay the difference out-of-pocket or transfer the debt into a new loan contract when you buy the new vehicle.