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If you’re looking to sell your car but still have outstanding finance attached to it, it’s important to find out whether you can transfer a car loan to another person. While you won’t be able to hand your car loan over to someone else, you can learn all about your options when it comes to transferring car ownership under finance in Australia right here with Savvy today.
Am I able to transfer my car loan to another person?
No – it isn’t possible for someone to transfer their outstanding car loan debt to a family member or someone else in Australia. All finance agreements are signed off on under the condition that you’ll be the only party responsible for repaying the loan debt.
Not being able to transfer your secured loan debt to someone else is also because responsible lending laws require lenders to do their due diligence and only approve applications for car buyers who can comfortably repay the debt across the proposed term. If your lender believes you may struggle to pay off the loan for which you’re applying for any reason, your application is unlikely to be approved.
In the event your financial situation changes and you’re unable to make your car loan repayments, you should always reach out to your lender as soon as possible to make them aware of the situation. Financiers will have hardship provisions for borrowers who struggle to make repayments, so it’s worth speaking to them to see whether you can qualify for some level of relief.
How can I transfer car ownership while under finance?
While you won’t be able to transfer your car loan to another person, you can still sell your vehicle under finance. This gives those still paying off their debt options to switch to a new vehicle or release themselves from their current loan commitments. There are three main ways to sell your car under finance:
- Paying out your loan with the proceeds from the car sale: the most common way to do so is to use the funds you receive from selling your car to cover the remainder of your loan. It’s crucial to be upfront about the loan with your buyer, as the situation may be more complex with a finance deal thrown into the mix. In many cases, your car buyer can transfer the funds directly to your lender.
- Paying out your loan with the proceeds from trading your car in: alternatively, you can follow the same general process when trading your car in at a dealership. If your car’s trade-in value is enough to cover the remainder of your loan debt, this can be paid directly to your lender by the dealership.
- Paying out your loan with savings before selling the vehicle: for those in a position to do so, you may wish to pay off your debt straight away with savings before selling your car. This may make the selling process more straightforward, as private car buyers are likely to be more interested in vehicles which are unencumbered (without finance).
It's important to bear in mind that selling a vehicle under finance is likely to come with an early repayment fee. This charge is included on most secured, fixed rate loan agreements and will vary in cost depending on several factors, such as the size of your loan and how long is left to run on your term. The earlier into your loan term you sell your car, the higher your early repayment fee is likely to be.
Should I wait until my loan is paid off before selling my car?
If possible, you should wait until your vehicle has no finance owing before selling it. This is because, as mentioned, encumbered vehicles are often harder to sell, given that buyers may be put off by the potential complications and could be reluctant to approach the sale as a result.
Bill Tsouvalas, Managing Director of Savvy, said:
“Selling your vehicle after your loan is repaid sidesteps a range of potential complications and deterrents for potential buyers entirely, smoothing out the process for all involved.
“While not everyone has the luxury to wait, doing so will likely increase your chances of selling your car.”
Can I swap finance from one car to another?
No – you also won’t be able to directly transfer your car loan from one vehicle to another, as your loan terms will be based on the original secured vehicle, as well as your financial situation at the time you were approved.
However, what you may be able to do is refinance your car loan. This can allow you to take out a new loan for a new car which also covers the remaining debt for your old vehicle. Doing this after a period of repaying a car loan can also benefit you if you’ve kept up with your repayments, as your credit and profile may have improved to an extent where you can qualify for a better interest rate.
As a borrower, you can choose whether to do this with your current lender or a new one. Your financier will work with you to find the most suitable way to take out another car loan while covering your existing debt. Car loan refinancing can also be an option to extend your loan term or access a more affordable deal if you’re struggling with your repayments.
Does selling my car under finance affect my credit score?
Paying out your loan in full when selling your car could help your credit score grow, which could in turn make it easier for you to access lower-interest finance in the future. Lenders conducting assessments of your profile will look kindly on previous loan commitments that were repaid promptly and ahead of schedule, as you’ll be seen as a more trustworthy borrower when it comes to repaying your debts.
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