When you finance your car, you will have to pay down the debt over a period of months. It can last for up to three years and sometimes longer. Not all of you are lucky that you can buy a car outright, and if you finance it, it can take several years to own your car. What if you want to sell your car before you own it?
An auto loan is a secured loan, which means you cannot own your car until you pay off the debt in full. Your car itself is the security in these loans. The lender will cash out the car in case you fail to pay off the debt on time.
Since you do not own the car, how can you sell it? You must have the right to sell your car, and you can get it if you have the title of the car, and you can get it when you pay off the debt in full. This all seems too cumbersome.
You may conclude that you cannot sell your car with outstanding debt payments. Well, the case is not as it seems. Here is what you need to do to sell your car under finance.
Talk to your lender first
First off, you should talk to the lender to know how much you exactly owe. The most common approach that a lender will suggest you follow is to pay off the whole of the debt to get the lien released.
This will transfer the title of the car to you, so you get the right to sell your car to anyone. Do not forget to consider additional fees. If you are paying off the debt too early, you will end up paying early repayment fees.
Lenders charge prepayment fees to mitigate the loss arising out of the early settlement of the debt. Before you decide to sell, you should inquire about these fees. They may involve administration fees, break fee and cost recovery fee.
If you do not have the cash to pay off the debt, you will settle it after selling your car. You will have to make your lender understand your financial condition. You will sign a payout letter that will explain how you will be paying off the debt during or after the sale of your car.
Knowing the worth of your car
Before you decide to sell your car, you should check the worth of your car. As the market value of the car quickly plummets due to depreciation, it is always suggested to check it once. You can do online research or call a third party to determine the value of your car.
Sometimes your car may not bring in enough value, and as a result, paying off the whole of the debt does not make sense. Knowing the value of your car before you put it on sale is always a good idea to see if you are able to make some money even after paying off the whole of the debt.
If it is much low, you should drop the idea of selling your car because no one will pay you more than the market value, and as a result, you will incur a huge loss.
Make your buyer believe that you have paid off the rest payment
If you have already settled the whole of the debt before selling your car, there will not be any problems. However, if you decide to settle the outstanding amount after the sale of your car, you will have to convince your buyer that it will not transfer the debt burden to them.
Most buyers are generally not comfortable after knowing that you will use their money to pay back the debt. They are not sure that you will use that money to settle an outstanding auto loan. This is why it can be hard to convince the buyer.
To help them do away with their worries, you can take them to your bank or the lender where your car is financed or show them the letter you have signed to promise them to pay off the debt in a scheduled way.
You can tell them that you can show the settlement paper after the sale of the car, so the buyer knows the debt has been paid in full and there is no lien on it. If your buyer is still not convinced, you will have to either settle your debt in full before signing the sale agreement or look for a new buyer.
Try to talk to your lender if they can accept the payment from the buyer. Some banks or lenders have the clause to accept payments from the buyer. If that option is available, you can ask your buyer to split the payment. One part they can transfer to your lender and the rest to you. This is a great way to help your buyers get rid of all worries.
This is not the case with HP and PCP
If you have financed your car with HP or PCP, you cannot sell your car until you pay off the whole of your debt. However, if you have financed it with a personal loan, there is still a scope provided your car is not secure.
If your car serves the purpose of security, a few lenders can allow you to sell the car before the debt settlement, provided your car’s worth is enough to cover the outstanding debt.
If you have taken on bad credit car finance in Ireland, you may not have the scope for selling the car until you settle the whole of your debt. This is because such debts are generally expensive, and your car may have the value to cover outstanding dues.