Is it illegal to sell a car under finance?

No, it’s not illegal to sell a car under finance. 

Most people wouldn’t go to the trouble of organising a car loan just to turn around and go through the hassle of trying to sell a used car under finance, but life happens and circumstances change. It’s completely legal to sell a car under finance but it can be complicated, and there are a number of things you should know before doing so. This article will not focus on general advice related to selling a car under finance, but instead focus on the legalities. 

In Australia, sellers are not legally obliged to disclose that the car they’re trying to flog off has any financial baggage. As per NSW Fair Trading’s guide for car buyers, making sure that the vehicle is not encumbered (under finance), stolen or de-registered is the responsibility of the buyer in a private sale.

This applies nationwide. It’s the responsibility of the buyer to do their own due diligence before sale and your only real legal protection from unknowingly taking on someone else’s old car-loan obligations, comes in the form of the Personal Property Securities Act.

According to this law, if you run a check on the vehicle you want to purchase on the Personal Property Securities Register and find that there are no security interests attached to the car (existing financial obligations), you can protect yourself by purchasing a certificate that documents this and buying said vehicle on the same day or the day after.

If you follow this process then you’re legally protected from being liable for any hidden loans or financing that you may discover at a later date, and you don’t have to worry about waking up one day to find that ‘your’ car is being repossessed. You will have good title to the car without encumbrances.

Also remember that buying a car that’s under finance could affect your insurance. Insurance company Youi has a helpful article detailing what could happen after buying a car that’s got finance owing, from an insurance perspective. In a nutshell, if you don’t follow the PPSR process to be protected as a consumer under Australian law, then you could end up finding out that your car has finance owing on it once you make an insurance claim.

Imagine making a claim, and watching your payout go to the lending institution that has more of a legal right to be paid than you do! Unfortunately this is a situation that can and does happen, so do your due diligence before buying a car from a private seller. And if you’re selling, do the right thing and don’t take advantage of a buyer’s naivety and the legal system swinging in your favour. Disclose that your car is under finance and organise a win-win for you and the buyer.

This article is not intended as legal advice. You should check with the relevant local authorities to verify the information written here is suitable to your situation before selling or purchasing a vehicle using the information gathered here.