Buying a Car That Has Finance Owing - Yay or Nay?

SlavOz on 29/09/2019 - 19:01
Last edited 29/09/2019 - 19:02

So after months of searching, driving around to countless places and dodgy sellers, I've found a dream buy. Price is high but fair for the model and km's. Long story short is that the seller (private) says the car is currently under finance which he will pay out and clear if I decide to buy it.

This sounds like an "honour system" agreement which I don't want to do. What's the general process of buying a car that's under finance? Do we write up a contract agreeing that the current owner will pay off the remaining amount owning on the car after our sale? Or would it be safer to find out how much is owing and simply deduce that from the final purchase price so I can pay off the debt myself?

Automotive

Comments

  • bazzato on 29/09/2019 - 19:06
    +15

    I've always asked the owner to clear the debt, then once clear title is shown I purchase. I did this mainly because I didn't want to have to deal with a finance company and know that when I drove it away all was paid for. Either way should be fine though

  • cypher67 on 29/09/2019 - 19:19
    +85

    I had the same scenario, I wouldnt trust anyone under any circumstances when it comes to large sums of money like this. I did a revs check up front and found out money was owing, he said yeah it was a lease and needed my money to pay it off. I said no dice, either pay it off up front or I dont want it. He got the money somehow and paid it off. After he said it was paid off, I did the revs check again and it said there was nothing owing on the car. I paid for the car and happy days.

    • CocaKoala on 30/09/2019 - 15:28
      +18

      ^^^ This person knows what they're talking about. Listen and learn. ^^^

      • Kangal on 30/09/2019 - 20:58
        +4

        ^^^ So does this person, listen loudly ^^^

    • FrugalDealHunter on 01/10/2019 - 16:27
      +1

      This.

      Don’t bother drawing up a contract because even if you do, if he does a runner you have to enforce the contract which Is a whole other ball game. You would involve small courts tribunal. Then there’s always the chance to spin stories or get out of a contract if it isn’t written properly. Not to mention the stress and drama.
      M

  • KingJuf on 29/09/2019 - 19:23
    +1

    The safest option would be not to purchase obviously until finance is cleared, unfortunately this is not possible in most cases as seller needs funds to clear debt.

    What I have done several times is wrote up an agreement between us, then provided the seller the funds and be there during the process of them clearing the debt with their bank. They provide you a receipt for paying it off. It generally takes a couple days for the finance to clear for revs check.

    This is also case by case I think you can gauge what type of person it is and whether or not you will be willing to take the risk with them.

  • [Deactivated] on 29/09/2019 - 19:24
    +23

    Honour system doesn't exist here.

  • spackbace on 29/09/2019 - 19:49
    +18

    Buy only cars that are revs clear, don't gamble

  • tassieeagle on 29/09/2019 - 19:50
    +2

    No way, get out, danger danger.

  • zonra on 29/09/2019 - 19:51
    +45

    I’ve done it before.
    What you do is get the seller to request a payout letter from the lender.
    Say if it was a 10k car with 7k still owing, you pay 7k directly to the lender, leaving 3k to seller.
    Obviously be aware of fraudulent documents and the likes but this way you can be sure the loan will be paid out properly.

    P/s: under no circumstances should you trust seller to do the payout amount themselves, if they don’t like the above method, walk away.

    • SlavOz on 29/09/2019 - 20:06
      +3

      Hi, thank you for the tip! This seemed like the safest way to me as well - finding out how much is currently owing, sending that amount directly to the lease company and then giving the seller the rest.

      Do you think the lender would be willing to confirm details of the loan with me via phone or would that be unheard of?

      • spackbace on 29/09/2019 - 20:22
        +8

        No, no financier will tell you about the financials of someone else

      • tanksinatra on 29/09/2019 - 20:23
        +1

        When I tried I found that the lender refused to share any information with me whatsoever other. This made the sale impossible.

      • zonra on 29/09/2019 - 20:57
        +2

        I think it’ll have to go through the seller, after all they are the lender’s client.
        In my case the seller showed us the payout letter, we sent payment to the provided biller code (this you can confirm yourself).

        P/s: I’m not saying this is a foolproof method, but it is a better alternative than to trust the seller to pay off the loan themselves.
        It worked for me.
        Trust your gut, if you feel iffy, walk away.

    • spackbace on 29/09/2019 - 20:21
      +2

      And if there's more than 1 loan owing against the vehicle…?

      • zonra on 29/09/2019 - 20:58
        +5

        Then you throw it in the too-hard basket and walk away.

      • SlavOz on 29/09/2019 - 23:37

        I've done a Revs and PSSR check. I'm assuming this would show all debts owed against the car right? The report says its just the one debt.

      • AdosHouse on 30/09/2019 - 00:15
        +4

        How do you have more than 1 loan against a single vehicle? The first financier would register their security over the vehicle. No other financier is going to touch that.

        • malich on 01/10/2019 - 10:24

          Some lenders will put a second encumbrance on. Credit unions are notorious for doing this when a client is taking out a secured personal loan.

    • themirror on 30/09/2019 - 10:07

      I did something similar. Seller sent a screenshot of the final payment. Then I did a PPSR check until it showed no finance owing. Took a few days to clear.

    • Sean8802 on 02/10/2019 - 06:58

      I second this comment. I did the same thing when purchasing my second car. Best way to cover your behind.

  • thatonethere on 29/09/2019 - 20:36
    +2

    Ive been the seller (15 years ago now) and when young and foolish I bought a BMW. After a couple years it wasn't going to cut as a family car I managed to sell it on car sales where the buyer (naively probably) paid the finance guys directly 90% of what was owing and I paid the difference. I gave him the payout details.

    I think his dad realised what he had done he flew down from Sydney asap to collect the car.

    In 20 20 hindsight there was a lot of risk both sides. E.g. I could have kept the money, he could have submitted a cheque which he cancelled etc. Ideally you would have some third party escrow involved but that would add a few thousand…

  • conza on 29/09/2019 - 20:48
    -2

    If the price is right, I don't think it matters too much, before it comes into your possession it should be cleared on the revs check, depending on the buyer/seller relationship, perhaps there's a safe mechanism to pay them so they can pay the finance off, some way that you own the car and they still own the debt, then shortly after the debt is cleared with the funds you provided without there being risk but I don't know.

    However, if someone owns a car they can't afford to temporarily pay the finance off for, before being reimbursed by your purchase funds later, might not be a good sign anyway, I don't know it would still depend on the price, would you take part in the complication to save $10k? I'd certainly consider it.

    EDIT: As long as the debt does not go in your name, I think it's fine, further more if the remaining debt "is" why its cheaper eg. $10k car, $7k in debt and you agree to transfer the debt in lieu of paying the extra $3k, you keep the $3k savings AND if there are payments setup, you don't need to lose your $7k right away, seems like there might be some good options there, just has to be safe.

    • brendanm on 29/09/2019 - 23:31
      +4

      It doesn't matter if the debt "goes into your name". If it is a secured loan, the lender owns the vehicle until it's payed off. If you get it with money owing, the guy decided he doesn't want to continue paying, your car will then be repossessed.

  • Randxyz123 on 29/09/2019 - 21:02
    +2

    the seller (private) says the car is currently under finance which he will pay out and clear if I decide to buy it.

    The seller needs to contact the finance company and ask them how it works for whatever company they used.

    Normally it will be that you organise 2 transfers or bank cheques. 1 for the finance company, the balance to the seller. Once the amount owing has been settled, ask the finance company for a letter (to you/seller) saying this is the case and do another PPSR check to be sure. Make sure you get a copy so you have it on record it has been sorted. Also make sure they haven't got multiple loans.

    Then pay the balance to the seller and arrange the transfer.

    DO NOT let the seller say they'll do it. They might not.

  • apple2016 on 29/09/2019 - 21:26
    +1

    I once sold a car with finance on it . I had the buyer pay the finance company and I took the money on top. But this was about 15 years ago.

    • apsilon on 30/09/2019 - 06:45

      I did the same, probably around the same time ago.

      In my case I had them make up two bank cheques, one to the credit union for the balance of the loan and the other for the balance of the sale to me. Still some trust involved and I must admit these days I'd be more reluctant if I was the buyer.

  • AdosHouse on 29/09/2019 - 22:04
    +3

    You get the seller to get a payout figure, you make one bank cheque for that amount, and the remainder to the seller. You then walk into a branch with the seller and personally give the cheque to the finance, and get a letter saying it is clear. You then give the seller the other cheque and drive your car home.

    • spackbace on 29/09/2019 - 22:08

      You get the seller to get a payout figure, you make one bank cheque for that amount, and the remainder to the seller. You then walk into a branch with the seller and personally give the cheque to the finance, and get a letter saying it is clear.

      And as you walk out, the seller jumps in their car, locks the central locking and drives off.

      Next step?

      • AdosHouse on 30/09/2019 - 00:11
        +6

        That could literally happen at any private car sale. Hence why you always mitigate any risk by taking copies of drivers licence, pictures, REVS checks, etc.

        And next step would be to report the cheques as stolen and call police.

      • freshofftheplane on 02/10/2019 - 08:24
        -1

        Haha this. It's mind blowing that cars in Australia (at least in VIC) don't have registered owners

  • saliya on 29/09/2019 - 22:48
    +3

    You can either:

    • demand of the seller that the debt be cleared before purchase; or
    • clear the debt upon purchase with payment(s) to the financier (and possibly title holder afterwards)
      as part of the purchase terms.

    You can request that the creditor release details of the debt to you.
    (as in the financier will tell you what is owed on the car). This
    happens with the authority of the current debtor.

    Be aware that if you pay someone else's debt (clearest path to title of an encumbered asset)
    you may be left without an asset dependent on the wording of your contract. You could pay
    and they could walk if your terms do not operate properly.

  • SlavOz on 29/09/2019 - 23:35
    -6

    THANKS Peeps. I think I'm going to go with my original method of confirming how much is currently owed on the car and then subtracting that from the purchase price.

    Eg - car has $6k in debt and we agree to sell the car for $10k. I would just give the seller his $4k and tell him he gets to keep it and not have to worry about anything else. All I need to do is use the rest of the money to pay off the debt. This negates most of the risks.

    The seller shouldn't have a problem because even if I don't end up paying off the debt it wouldn't affect him as the debt would be in my name anyway.

    • spackbace on 29/09/2019 - 23:47
      +8

      The seller shouldn't have a problem because even if I don't end up paying off the debt it wouldn't affect him as the debt would be in my name anyway.

      You don't take possession of the loan by buying the car. Are you thinking you can continue his repayments? 😂

      Lol you have a lot to learn

      • [Deactivated] on 30/09/2019 - 10:51

        @spack, we have to stop doing this or people are going to complain that I'm one of your ghost accounts :p

    • [Deactivated] on 29/09/2019 - 23:49
      +4

      The seller shouldn't have a problem because even if I don't end up paying off the debt it wouldn't affect him as the debt would be in my name anyway.

      That's not how it works. The debt is in his name. If it was me, I wouldn't hand over the car without making sure that you've paid the debt first. Why should I trust you?

    • blitz on 30/09/2019 - 11:10

      I think I'm going to go with my original method of confirming how much is currently owed on the car and then subtracting that from the purchase price.

      Do you understand how finance works and who really owns the car? The seller does not own the car. Money paid to him means nothing.

  • [Deactivated] on 29/09/2019 - 23:42
    +5

    Price is high but fair

    Not worth the risk. Now if it was an ozbargain-worthy buy, I might be willing to take a calculated risk but for a "fair" price? No way.

  • gozyla86 on 30/09/2019 - 00:41

    I would say let the owner obtain the document debt payout from the bank. Go to the bank or transfer the money that still owned directly to the bank and the rest (if any) to the seller.

  • jimbobaus on 30/09/2019 - 05:39
    +2

    I recently did this exact thing… like 5 days ago.

    I did a revs check and found finance was owing.
    Got the seller to get documentation to show what was owing on the car and who the finance company was (it was Pepper Money in his case)
    I got him to give me authorisation on his loan (to speak to the Finance company)
    I had a bank cheque made out to Pepper for his payout which i posted to them directly (express post)
    I called the finance company the following day, they advised me the loan was cleared and released the caveat on the car.
    I paid the seller the balance of what we agreed

    Its annoying, but if its your dream car (which mine was) then there is a way to do it.
    Just make sure you are paying the finance off directly, do not give the seller the funds and "trust" them to pay off the finance.

    • SlavOz on 30/09/2019 - 08:00
      +1

      Hi, thanks for sharing. I was thinking of doing it the same way initially but in such a case there's a risk that once the debt is paid off, the seller can refuse to sell you the car and just run away.

      The only way around this would be to pay it off by phone while sitting in the actual car with the seller.

      • [Deactivated] on 30/09/2019 - 10:45
        +3

        The only way around this would be

        Just buy another car, mate.

      • jimbobaus on 30/09/2019 - 10:53
        +2

        As long as you pay the finance company directly then you should be fine.
        People buy cars with finance on them daily, just make sure you tick every box and you would be find.
        Make sure YOU are the one paying off the loan .. not the seller.

        You can ensure that the seller does not run off with your money and the car.. get an agreement in writing (which is what i did) and i also got it witnessed and certified by a Justice of the peace)
        As i said.. people buy cars under finance every day.. its easy but takes a bit longer overall.

        If their finance is a bank.. its even easier.. u can literally go to the bank with the seller and pay out the loan in person.
        then you can pay the balance (if there is one) to the seller and take the car home :)

      • trev likes bargains on 30/09/2019 - 11:39

        Just do it at the same time

  • askme69 on 30/09/2019 - 09:53
    +2

    It's a bit hard for the seller to pay out the existing loan if you haven't given them any money.

    I have done this several times.

    It's a pain, but i go to the bank with them or i go to the financial place and i pay out the loan etc which is the security on the vehicle. They put it in writing that i have done so and the title is clear (receipt etc supplied). I check with REVS, then i go and give the seller the balance.

    YES it is a few extra steps.

    • [Deactivated] on 30/09/2019 - 10:46

      What if they refuse to give you the car after you've paid their loan?

      • jimbobaus on 30/09/2019 - 10:57

        Get everything in writing and certified and witnessed, court will take your side if it came to that
        it almost never comes to that btw

      • zonra on 30/09/2019 - 11:37
        +3

        What it they refuse to give you the car after you’ve paid their loan?

        Isn’t that the same with standard sales?
        What if seller refuses to give you the car after you’ve paid them?
        What if buyer gets robbed on the way?
        What if the car turns out to be a lemon?
        What if it rains on the day?

        These problems are not specific to buying a car on finance.

        • 91rs on 30/09/2019 - 13:13
          +2

          "What if it rains on the day?"
          Cloud insurance you fool.

        • [Deactivated] on 30/09/2019 - 13:44
          +1

          Been spending way too much time in the forum section of ozb and it's turning me into quite the cynic.

          I hope everything goes as planned and you get the car of your dreams, Op :)

  • Bluberry on 30/09/2019 - 09:59
    -4

    Walk away. Not worth the risk(s) involved.

  • Oz8argain on 30/09/2019 - 09:59

    What would happen if he buys the car and seller doesn't payout? wouldn't default hurt the seller's credit as well?

    • brendanm on 30/09/2019 - 10:12

      Not as much as it would hurt op to have his car repossessed.

    • gromit on 30/09/2019 - 17:02

      You don't know the sellers financial position, maybe he is already about to go bankrupt and lose everything anyway. He could just be using the buyer as a quick bit of cash to pocket that they can't take from him once bankrupt. The reality is you don't know them, they may be perfectly honest but the way to think of it is "would you hand $10k or however much it is to a stranger on the street and trust them to go put it in your bank account for you unsupervised?"

  • trev likes bargains on 30/09/2019 - 11:37

    I have done this before. Get the payout letter from the finance company. Then pay them direct and give the balance to the seller. Easy

  • dTer on 30/09/2019 - 12:44
    +2

    I have bought a car under $6000 finance from ANZ, the car was $8250.

    After a PSSR check, I went to the bank with the seller, payed off the $6000 to his financed account, and got a printout from the bank saying no more was owed on the vehicle.

    I transferred the rest to his nominated account, and made two receipts, one for me, one for him. All encumbrance was cleared, I transferred rego, all good.

    IMO, if you are going to buy a car still financed, do it my way, where you go to the bank and clear the encumbrance right then and there, and get a printout saying such.

  • ankor on 30/09/2019 - 13:43
    +1

    There is no such thing as an honour system in a car sale, private or otherwise. You are the buyer and you need to do all things reasonable to protect yourself. Lots of good sensible advice here, which I won't repeat.

  • idonotknowwhy on 30/09/2019 - 13:51

    Get them to pay it first or subtract the remainder from the sale price.

    You don't want to get Shung'd

    Are you a lawyer? 🤣
    Goodnight!

    • ssquid on 30/09/2019 - 14:40
      +1

      OP's the potential buyer. Only sellers can get Shung'd.

  • 91rs on 30/09/2019 - 14:05

    Both bought a car while it was under finance and then sold a car while it was under finance.
    As per all the common sense comments above, dealt with the finance company via the seller (to allow details for payment and amounts to be shared), paid the difference to him, all other sale documents in place (transfer of ownership) and had a written agreement signed by a third party that all hinged on the vehicle no longer being security on finance.
    Did the reverse when selling a vehicle, got the finance company to contact buyer and share payout amount and details for payment, he paid me the difference, we had all docs ready to go with an agreement pending the security being removed from vehicle.
    All done, no issues.
    Just not quite as simple as show up with some cash and hand and walk away with it, which isn't something everyone can always do, especially when its a leased vehicle.

  • CollectingCorner on 30/09/2019 - 14:20

    Having dealt with this situation many times before, best to get a formal letter from the finance company advising of the amount owning with payment details.

    Verify that this is correct with the owner by having them share their initial lease schedule with you also.

    Then pay the finance yourself to the finance company, before you register the car in your name. Any overs pay directly to the owner.

  • lltravel on 30/09/2019 - 15:57

    This is very simple

    1. Get the owner to get a letter for the payout. This document should contain the details for the vehicle
    2. Contact the company for the payout
    3. Payout the loan + difference to the owner

    That way you know the title is cleared

    Write up a contract and sign before you do any of the steps above

    I have done the same thing

    Wired 60k to the finance
    35 k to the owner in cash

    Do not pay the owner directly.

    If you're getting finance on the car the finance company will handle the payout of the car

    • [Deactivated] on 30/09/2019 - 19:06
      +1

      You bought a $95k second-hand car? What did you get?

      • CollectingCorner on 30/09/2019 - 20:57

        not unusual, people do it all the time.
        2nd hand C63s, M3s, Caymans are popular 2nd hand cars at this price point.

      • lltravel on 30/09/2019 - 21:34

        Sorry, it was 25k cash. It was 85k all up

        It was a BMW 1M 2012 5 years ago. Best car I've ever owned.

        Nothing unusual. I know guys who have bought cars 150K plus second hand

        • [Deactivated] on 30/09/2019 - 22:42
          +2

          Not saying it's unusual. I sold my Carrera for a fair bit more than that. Was just curious about what you got :)

  • HeWhoKnows on 30/09/2019 - 21:19
    +1

    Stay away.

  • MyEducation on 30/09/2019 - 22:56
    +2

    I was in the same scenario with my car I purchased. There was money owing on it as I found out on a PPSR search and similar to Zora above I got them to retreive a payout letter from the lease company. Wrote up a quick contract of sale something along the lines of 'As part of this sale, the debt will first be cleared on the spot during point of sale and the remaining value to be paid to the owner' where I paid the finance owing, doing a PPSR check again and then gave him the remainder.

    A PPSR search is only $2 online and is definitely worth getting done before purchasing any vehicle and after paying the debt off.

    If there is money still owing, it will show something like "Registration kind: Security interest … Collateral class: Motor vehicle" and will state who provided the loan (i.e. BMW Aus Finance).

    If you are purchasing a performance/sporty car and there is a decent amount of money owing on it, I would definitely get it mechanically inspected as most of these kind of owners will flog the car (which they can't afford) and then try to sell it.

    • SlavOz on 01/10/2019 - 08:50
      +1

      Thanks. I've already written up a sales contract that goes into very specific clear detail on the sale just to be sure :)

      One other thing though - will the PSSR data still show finance owing after I make the payment? I spoke to the bank and they said it will take a few days for the payment to be processed and the debt to be shown as 'cleared' on their end.

      • MyEducation on 01/10/2019 - 16:17

        Yep, it does take a couple of days for it to process. As the remainder have an insignificant amount relative to the car (like 3k), he gave me the keys already and I went back to pay him the remainder when it cleared. It's usually easier when it's a car dealer, as what Lostn said, and would say that is the best way to do it.

  • [Deactivated] on 01/10/2019 - 08:13

    I've sold a car privately with finance owing.
    I was very upfront with the buyer, provided a copy of the letter from the financier which showed payout figure and payment details.
    Buyer made 2 separate payments: one to financier, one to me.
    I also had the registration transfer documents, sales contract, and deposit receipts, for both buyer and seller.

    The buyer appreciated my transparency and professionalism, the fact I took my time answering any questions they had, and had full history of the car.

    All in all, it went very smoothly, and both parties were happy with the outcome.

  • lostn on 01/10/2019 - 10:49

    If the owner has experience selling cars, he'll offer to go to the dealer with you to pay off the finance after you've agreed that the car is satisfactory. You go there together, you pay off the outstanding loan, and pay the balance to the seller.

  • Herbse on 01/10/2019 - 16:54

    Lots of people see "finance owing" and go oh noes, don't touch that car! I assume these same people don't buy houses unless it's paid off in full?

    You can pay the finance company directly using the money you are paying for the car. Talk to the owner and work it out, it's not hard.

    • Brouw3r on 01/10/2019 - 18:02
      +1

      Except in the case of a house there's an impartial third party by means of getting a settlement agent / conveyancer.

  • SlavOz on 01/10/2019 - 20:50
    +6

    Props for all the info guys. I was really set on the car because it was my dream, and I found the perfect one that ticked all the boxes. Was willing to work out the finance part but sadly it looks like it was a scam. As soon as I told the seller I was happy to buy the car by paying the bank directly and giving the rest to him in cash he said no dice and wanted the full amount in cash instead. Huge red flag so I let it go. I'm wondering if this is worth reporting to Carsales? Clearly sounds like he's trying to rort someone.

    • zonra on 01/10/2019 - 21:15
      +2

      Well done and kudos for the update.

  • funnybunny on 01/10/2019 - 22:37

    I did this once to buy a car that was under finance - I asked the seller for a final payment bill from the finance company (and independently verify this) and then I paid the seller the difference and paid the invoice off via bpay at the same time. Worked out alright for me.

  • Wallyt99 on 01/10/2019 - 23:17

    Most here are giving terrible advice.

    The buyer could simply refuse to sell you the car after you pay the debt on it.

    Yes you would have an action against the person in court… But do you really want to go to court?

    Also who on earth pays a premium price for a car to an under financial pressure seller?

    The only good option here is walk away.

  • Kkuba on 02/10/2019 - 06:19

    I bought my car interstate, so paid by bank transfer. I organised with the seller that I would transfer the amount owing on the loan to the finance company, and transfer the balance of the sale price to him. We organised this with all the relevant documentation from the finance company A few days later the title was clear, and my car was on its way.

    I flew over to see the car (and meet the person) before I paid any money. Just as you'd want to in any case.

    Risk is similar to buying any other second hand car privately. The only way to avoid any risk is to pay by cash, but who would do that for anything other than a sub 10k car. In every other case, either buyer has to send/provide money and await their goods (bank transfer), or (eg. bank cheque), seller has to give up goods and wait (and hope) for money to clear.

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