Selling Your Car Under Finance: Is It Legal?


When a car is under finance, this means that the loan from purchasing it has not been fully paid off yet, and there are outstanding debts for it. When you’re looking to sell your car that is still under finance, you’re technically selling something that you don’t own. If this is the case for you, fret not for this is not an illegal act. Despite so, it’s important that you take the time to read up on what a transaction like this will entail so that you are well aware of what you’ll be getting yourself into. For the clueless car owners out there, this article is exactly what you need, so read on to find out more!


The simplest way to explain the general approach of selling a car under finance would be that you pay off the loan immediately with the money received from selling it. However, it does get quite messy and can be difficult to grasp due to the many different aspects of car loans. Firstly, a car under finance is termed as an “encumbered” vehicle if you loaned it from a dealership. This means that if you don’t pay off your outstanding debts before the due date, your lender has the right to seize the car back from you; after which they will sell it off, and use the money to cover your outstanding balance.

With the car used as a security for the loan, this means that the loan only applies to the car itself, and not the buyer. To explain it better, while the buyer holds the responsibility of repaying the loan, the outstanding debt will only apply to the vehicle itself. As a result, this indicates that the car can get repossessed by the lender even if it has been sold to a new owner. Selling a car under finance sure does seem complicated, but it’s definitely legal.

Know Your Loan

Before you put your car under finance up for sale, it’s key that you first comprehend the type of loan that you have taken up, and familiarize yourself with the various terms and conditions that are applicable to your loan.

Even though you may have borrowed money to purchase your vehicle, this does not mean that your car is under “encumbrance”. If you had taken a personal loan or made the purchase using your credit card, your car is not considered taken as security. In this case, this is considered an unsecured loan, where there is no physical asset to act as the security; this is riskier for the lender. As a result, you’re likely to find better deals for car and home loans, rather than personal loans.

How To Sell My Car Under Finance?

Once you’ve identified the type of loan that you’re under, you should set an appointment with your lender or bank. Run through the numbers with them to know exactly how much you need to repay, and whether there are any terms or implications that you should be aware of. Also, ask whether there are any benefits for repaying your loans early, as some companies may offer some incentives.

Reassure Your Buyer

From a buyer’s perspective, purchasing a car under finance seems like too much work and unnecessary trouble. They will need the assurance that you will repay the debt once the sale is made so that they will avoid getting their new car seized. As such, it’s on you to reassure them that you will do just that.

You can gain the buyer’s confidence by setting up an appointment between your lender, your buyer, and yourself, where discussions will enable the buyer to better understand the situation. Some lenders also allow repayments to come directly from your buyer, which makes things easier for the latter. Another way is for you to pay off your loan before selling your car; the best-case scenario for all parties. While this is most preferred, not everyone will have sufficient funds lying around to cover the loan. Those who do, however, should consider doing so.

Seal the Deal

Even if your car is under finance, it doesn’t make it any less attractive, as long as you take the above-mentioned actions to properly reassure your buyer. Upon finding your prospective buyer, ensure that you abide by the instructions from your lender, and save copies of your important paperwork. This is so that if anything crops up in the future, you’ll have sufficient proof to show your innocence.

Is Getting A Car Worth All This Effort?

While the process of buying, upkeeping, and selling a car may be a great hassle that is extremely costly, whether or not it is worth it will depend on your need for a car. You can determine how much you need a car by looking at factors such as your lifestyle, career, and finances. Your decision to get a car should definitely not just be based on the selling process, but everything else as well. Selling a car is, after all, one of the most troublesome processes that you’ll have to go through as a car owner, but it should not be the main determinant. Most companies nowadays understand that buyers look for convenience, so as long as you take the time to source around, you’re bound to find an ideal loan that is broken down for your ease of understanding.


Having read all that, you’re probably thinking that the process of selling a car that’s still under finance is scarily complicated, and will require you to spare a great deal of time and effort. However, it’s definitely a possible task, and everything is made easier with the Internet today. At the end of the day, before you purchase your car, take the time to break down the different loans that are available on the market, and go for the one that best suits your needs; while ensuring that you are well familiar with the implications that may pop up in the future when you sell your car. Another thing to add to the costs of getting a car would definitely be car insurance. We all know that every car and its owner are different. Getting your car insured with Youi is a great option as they focus on personalizing a suitable coverage plan just for you and your beloved vehicle.