Yes you can – and it’s easier than you think – but you need to check all the details
Please note, that the information and guidance provided are intended as a research resource only and does not constitute financial advice. Before doing anything involving contractual finance decisions, please consult with your financial advisor.
If you’re shopping for a near-new car in the private car market, it could be encumbered with finance.
Research conducted last year by comparison website Finder reveals around 2.7-million Australians have a car loan – or more than 10 per cent of the total population.
Although it’s a myth that buying a used car with finance means the old owner’s repayments become yours, what actually could happen is that your shiny new vehicle is repossessed and liquidated to pay for the money owed against it.
As is the case with secured finance, the security – in this case, the vehicle – is what the financier will come for. It’s why buying a car with finance attached to it is a question we receive a lot in the Drive inbox.
So before we go and explain how, yes it is possible to safely purchase a car privately with finance owing.
Let’s take a look at how…
Establish whether the vehicle is financed
Once you’ve found the ideal car for you in the private marketplace, it’s time to do a PPSR check.
PPSR stands for the Personal Property Securities Register – a federal-government-led and searchable database of vehicle identification numbers and their respective owners – be it a private person, or a financial institution.
To explain briefly, when you finance a car and use the vehicle as security – you don’t own the car. The asset (vehicle) is offered as collateral, and the financier encumbers the vehicle until the debt is paid.
This information is recorded on the PPSR and provides visibility on whether the current owner purchased the vehicle outright with cash or used the vehicle as security to obtain finance.
Although there are multiple ways to purchase a PPSR, the cheapest and best way is directly from the government website. A check costs $2 and spits out a report as seen below:
The report is quite self-explanatory and outlines all key information: Vehicle Identification Number, engine number, registration, year of manufacture and year/month of vehicle compliance (likely the date was prepared for sale in the country).
However, it’s under the “PPSR Registration Details” where you’ll find out if the vehicle has finance owing. Our test PPSR certificate above shows a car that is not financed, but if it were, it would list the financier’s details.
It also explains whether the vehicle is listed on the written-off register or has previously been stolen-and-recovered which are also both handy to know.
As a side note, the PPSR register covers all states bar Tasmania. To search there, you must use its own state-based system.
The car is financed, how do I buy it?
Communication with the seller directly and early on in the piece is a wise move.
Assuming the party selling the vehicle is legitimate and forthcoming, they will likely reveal the fact the car is financed. Chances are you’ll have a freshly-minted PPSR to find out regardless.
After having the vehicle inspected by an independent third party and you’re confident with the proposed purchase price, it’s time to understand how much money is owed and to whom.
This is best done by the seller of the vehicle, who will always be able to phone, email, or in most cases, generate a “letter of discharge” or final payment figure for the vehicle instantly and online via a self-service portal.
It is important to check the date the discharge letter was generated, as the final payout figure will change every few days due to calculated interest. The discharge letter will also tell you how long the final payout figure is valid for.
If you’re paying more for the car than the amount owing, you will need to make two payments: One to the financier, and then the remainder to the seller.
How do I transact knowing who to pay and how much?
There are multiple ways to exchange and drive away happy, but always exercise common sense when handling money in a private deal.
If you are buying a car under a new finance deal, the two institutions will work on this process together. One finance loan must be paid out before another can commence though; you cannot simply take over the payments.
If you are paying cash, the best way is to simultaneously clear funds with both the financier and the seller before driving away. This can be done simply via smart and fast modern-day OSKO bank transfers – a system you can use on your phone with most large Australian banking apps and institutions.
That means the payment to the seller can be instant – the only thing they ought to care about. Never expect or ask the seller to pay-out the vehicle to the financier with your funds.
If the seller keeps your money and fails to do so, your right of recourse is slim and you’ll be stuck having to clear the debt, or worse yet, having the vehicle repossessed. It is the buyer’s responsibility to remain in control of paying the financier.
Another simple way to exchange is physically at the bank together. If your banking institution doesn’t allow for swift OSKO payments, you can instead conduct timely payments at a physical store directly into the correct accounts against the backdrop of a secure financial institution.
More often than not you’ll find a place where both your bank and the seller’s bank are close-by, or at worst a short drive between each other. Better yet – you could both bank with the same institution! It’s happened to me before personally.
Both are smart solutions that any legitimate seller should have no issue with. After a few days of making the payment, the seller will receive a payout letter stating the vehicle is not unencumbered and owned outright – which they should forward to you.
If the seller goes quiet; fear not, the financier will happily oblige a phone call to forward you the letter directly – especially as the debt will be clear and because you’ll provide a remittance to support proof of payment and ownership.
Happy hunting!
Drive’s tips
- Always confirm a car’s finance status with a PPSR certificate
- If paying out finance, insist on a payout letter that is no more than 24 hours old, and pay the amount immediately to the financial institution, and never directly to the seller
- Never accept an offer to take over payments
- If you are purchasing with new finance, your lender can manage this process, but ensure you receive all documentation
- Request a confirmation letter from the financier that the vehicle is no-longer encumbered
The post Can you buy a private car with finance still owing? appeared first on Drive.