Selling a car that is still under finance can feel overwhelming, especially if it’s your first time. The process is straightforward once you understand the steps: you’ll need to request a payout figure from your lender, work out what your car is worth and find a buyer who is comfortable purchasing a vehicle that’s still under finance.
Some private buyers may be cautious, and online marketplaces may not always deliver quick or simple results. In this guide, we’ll walk you through everything you need to know about selling a car under finance, including how to prepare, what to expect and how to ensure the sale is handled safely and correctly.
What does under finance mean?
In simple terms, a car is considered under finance when there is still money owing on the loan used to buy it. Until that amount (known as the payout figure) is cleared, the lender retains an interest in the vehicle. This means the car cannot be transferred to someone else until the finance is settled.
For sellers, the key takeaway is that you can sell a car under finance. The loan just needs to be repaid as part of the sale process, so the lender can release their interest before the vehicle changes hands.
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Understanding car finance and encumbrance
Encumbrance is the technical term used to describe a lender’s registered claim over a financed vehicle. When a car is purchased with a loan, the vehicle is typically used as collateral, property that is secured against the loan, which reduces the risk for lenders.
If the loan is finalised in this way, the car becomes known as encumbered or under finance. This means that the lender holds an interest in the vehicle until the loan is fully repaid. This registration ensures the lender’s rights are protected and signals to any prospective buyer that outstanding finance must be cleared before ownership can be transferred.
Can you sell a car under finance legally?
Yes, selling a car under finance is both legal and possible, as long as specific steps are taken by all parties involved. As the seller, it is your responsibility to make sure the process is followed correctly, disclosing to any potential buyers that the car is encumbered by finance. Failing to do so can not only lead to a loss of trust, but it may also violate clauses of the finance agreement and have legal consequences.
Selling a financed car — preparing and executing the sale
Preparing a financed vehicle for sale involves these specific steps to ensure the sale is smooth and legal:
Step 1: Obtain a payout figure
Contact your financier and request a payout figure for the amount required to clear the loan. This number should include the remaining loan balance, plus any early termination fees that may be applicable.
Step 2: Value your car
Determine your vehicle’s market value to ensure a fair selling price. This can be achieved through using an online valuation tool, checking for listings of similar cars or obtaining a professional valuation.
Step 3: Find a buyer
List your vehicle for sale to attract prospective buyers. You can use various online car-selling marketplaces to assist you, or you can create a private listing (which has its pros and cons). Remember to be upfront with potential purchasers about the car being under finance.
Keep in mind that some selling platforms may charge seller fees, so it’s worth checking the costs involved before choosing where to list your car.
Step 4: Negotiate the sale
Come to an agreement with the buyer on the sale price of the vehicle. In your negotiations, remember to factor in both the car’s market value and the payout figure of your finance agreement.
Selling a financed car — clearing the finance and finalising the sale
Once you’ve found a buyer for your vehicle, follow these steps when selling a car under finance:
Step 1: Clear the finance
The payout figure must be cleared once the sale price has been agreed upon. If the sale price covers the payout figure completely, you can pay your financier directly. If there is a shortfall, it is your responsibility as the seller to pay the difference.
Step 2: Transfer ownership
After clearing the finance, you’re able to transfer ownership of the vehicle to the buyer. Collate all paperwork and fill out all necessary documents relating to the sale. Remember to inform the relevant authorities of the change in ownership.
Step 3: Provide a receipt
Always provide the buyer with a receipt to show that the car is no longer legally yours, and to allow them to easily register it in their name. Include details of the car, including its make, model, VIN and the terms of the sale, such as price, finance status and selling date.
Selling a financed car — clearing the finance and finalising the sale
Insurance and warranties can change once the finance is cleared. Your comprehensive insurance will usually stay active until ownership officially transfers, after which the buyer must arrange their own cover. Any remaining manufacturer warranty typically stays with the car and transfers automatically to the new owner. Third-party warranties may have specific rules, so it is worth checking the terms before finalising the sale.
AutoFlip can help you sell your car quickly and for the best price
Whether under finance or not, selling a car does not need to feel complicated. With the right steps and clear communication, you can finalise the loan, complete the paperwork and move on to your next vehicle with confidence.
AutoFlip helps make this process easier. Our team guides you through each stage of selling a financed car and works with your lender and the successful buyer so the transaction is completed without hassle. You get support from real people who understand the ins and outs of selling an encumbered vehicle and who know how to keep the process moving.
With decades of automotive experience and a network of over 1,000 licensed dealers, we make selling a car under finance feel straightforward from start to finish. If you are ready to sell, get your instant offer today.
