Can I sell my car before it is paid off? November 29th, 2017

Can I sell my car before it is paid off?

Selling a car before you have paid it off may sound like a difficult task, but it is in reality a common occurrence. However, it is important to note that there are a few precautions to take before selling your car while still under finance, some of which are only applicable in certain situations.

More detail on selling your car before it is paid off

Buyers are always wary of purchasing a vehicle from private car sales without official ownership documentation. In order to get that documentation, however, you will have to pay off your loan with the bank. In an ideal world, when you sell your car before paying it off, you will make enough money from the sale to pay off the loan. However, unless your car is sold at an amount that is equal to or more than the finance you took out, you will not make enough from the sale alone to repay the amount in full.

Depreciation of value

One vital fact to remember is that cars lose value over time. In fact, almost as soon as they leave the salesroom floor. No matter if your car is only a year old, it will still not reach the original value you paid for it. Depreciation is a normal part of car ownership, so make sure you check your car’s book value before you sell it. Unfortunately, your selling price will likely be much lower than the initial price you paid for it, and if you attempt to sell it for more then you will likely be unsuccessful.

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Selling while under debt review

If you are considering selling your car while under debt review, in order to pay back the debt, you will discover that the process is not as simple as you may think. Those under debt review may have to have the sale approved by their bank, which can entail submitting a written offer from the buyer and requiring you to pay VAT on the sale. If the value that you receive from your sale does not cover the full remaining amount of the loan, then this will be included in the debt review.

Obtain an official payoff amount

Because you may not know exactly when you will be making a final sale on your car, this document will allow you to keep track of how your payoff amount changes from day to day as well as instructions for completing the payment, such as where to send the payments. Interest changes will change the amount of your loan, which makes it even more vital to get the best sales price to cover most of the amount you still owe.

Figure out when you will hit break even

If you sell your car before you hit the “break even” stage, you will stand to lose a large amount on the car and the entire undertaking will have been futile. Trading in or selling your car when you hit this break even point usually means that you will end up paying in on your car. The best time is to sell after this point in order have little to no repayments left on your car. If you have signed a 72 month loan, the break even point is at 48 to 52 months, so be wary of preemptive private car sales.

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Consider the buyer

If you are conducting private car sales to cover your debt, you should first consider how your buyer will feel about this. Many buyers will be highly reluctant to purchase a vehicle that is still being repaid, as this will delay any paperwork proceedings and will mean they may have to wait to transfer the car into their name. Most buyers research the car’s book value and will refuse to pay more than or equal to this amount for a used car. One tip to remember is to never price based on what you owe, especially if the book value is less than this amount.

Consider trading in

An option to consider if you are looking to repay your car finance by essentially getting rid of your car, is to trade it in to a car dealer. When you trade it in, the dealer will provide financial assistance to settle outstanding balances that are still owed on the vehicle. It is important to note that these incentives are usually only provided on condition that you purchase a new car from the dealer.

Private car sales allow you to have a higher asking price and this will help to repay your finance amount. Be sure to be completely certain about the amount you still owe in order to correctly price your vehicle. Do not be discouraged from selling your car if you still owe money on it as it is often a successful procedure and the end results will put you in a better financial position.

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