Selling a car when you still owe finance

The short answer

Your lender almost certainly has a claim on the car. That claim sits on the Personal Property Securities Register (PPSR), where any buyer can see it. So you cannot just hand over the keys and keep the cash. The loan has to be paid off from the sale, or the lender has to release its claim in some agreed way.

Most sales follow the same order: get the settlement figure, compare it to the car’s likely sale price, tell the lender, choose how to sell, set up a safe payment, then confirm the PPSR claim is gone and update your insurer.

Step 1: get a written settlement figure

Contact your lender and ask for a settlement statement, sometimes called a payout figure. It tells you the exact amount to clear the loan on a given day. It can include:

• the remaining principal
• interest up to the settlement date
• any early repayment fee
• any other fees still owing

The figure is valid for a short time, so ask for a new one close to the sale. Do not use the balance on your latest statement, because it will usually be lower than the true payout.

Step 2: compare it with what the car will sell for

Look at similar cars in your area for sale and check recent asking prices, keeping in mind that a dealer trade-in is normally lower than a private asking price. Then compare:

• Sale price higher than the settlement figure. You have equity. The difference is yours after the loan is cleared.
• Sale price about the same. You walk away with little or nothing, so check fees and the cost of advertising.
• Sale price lower than the settlement figure. This is negative equity, covered below.

Step 3: tell your lender and check the contract

Read your credit contract for what it says about selling or disposing of the car. Many contracts say you must not sell without the lender’s agreement, and some lenders have a process to follow. One NZ lender’s page, for example, says to contact it first, expect questions about the car, and be ready for an application, and that if approved it will adjust the agreement and release the car from the PPSR.

Do not skip this. A buyer who pays you and not the lender can end up with a car the lender still has the right to repossess. Trade Me’s buying guide says lenders can repossess and sell a car to recover a debt even after it has been sold to a new owner.

Early repayment fees under the CCCFA

If you are clearing the loan early, ask the lender in writing what the fee is and how it is worked out. Consumer Protection’s summary of the Credit Contracts and Consumer Finance Act (CCCFA) says:

• lenders must accept a full prepayment, but may refuse part payments unless the contract allows them
• credit fees and early repayment fees are not interest charges
• the fees must be reasonable and cover costs closely related to the purpose of the fee, and lenders cannot earn a profit from fees
• if a fee is unreasonable it can be challenged in court and reduced or cancelled

If the fee looks high, ask the lender how it was calculated and check the contract. Our page on how much a loan costs over time explains how interest accrues, which helps you spot whether the payout figure adds up.

Step 4: choose how to sell

Trading in at a dealer

A dealer will usually pay out your lender as part of the deal and deduct that amount from the trade-in value. It is the simplest route, and the dealer will often tell you quickly whether you have equity or a shortfall. The price is normally lower than a private sale, so get more than one offer. If you are buying a replacement, see using a trade-in as a deposit.

Selling privately

Private sales take more work but often fetch more. Things to do:

1. Be upfront in the listing. Trade Me’s buying guide says sellers must disclose any security interest, and that the amount owing should be paid off before the buyer takes ownership.
2. Show proof of the debt amount. If a vehicle history report confirms debt, the buyer will want confirmation from your lender of the exact amount.
3. Agree the payment split before handover. The cleanest approach is for the buyer to pay your lender the settlement figure directly and the rest to you.
4. Never hand over the car or the ownership papers before the lender has been paid.

Step 5: protect the buyer, and yourself

A careful buyer will search the PPSR, using the vehicle’s VIN or plate. Our guide to a PPSR check before you buy shows what they will see. Expect it, and welcome it, because a seller who has nothing to hide loses nothing from the check.

For safe payment:

• ask the lender how the payout is made and what reference to use, for example the financing statement number
• have the buyer pay the lender directly, or complete the sale at the lender’s branch if it offers that
• ask for written confirmation from the lender that the debt is cleared
• search the PPSR again after payout to confirm the lender’s registration has been removed

If something goes wrong after the sale, Trade Me’s guidance says the buyer can contact the seller and their insurer and can take the matter to the Disputes Tribunal. That is a headache you can avoid.

Negative equity: owing more than the car is worth

Negative equity means the settlement figure is higher than the sale price. Options:

1. Cover the gap in cash. Savings, or a short-term cheaper loan, can bridge it. Compare the cost before you borrow.
2. Keep the car for now. Extra repayments reduce the balance faster than depreciation reduces the car’s value.
3. Ask the lender for a payment plan. If you cannot afford the shortfall, talk to the lender early. Many have hardship processes.
4. Roll it into a new loan. Some lenders will let you buy another car with the old shortfall added. This raises the new loan above the car’s value, so the problem comes back with interest. Treat it as a last resort.

Our glossary entry on negative equity explains the idea. If your budget is too tight to cover a gap, free help is available from MoneyTalks on 0800 345 123.

A worked example

These numbers are made up to show the method.

	Case A: equity	Case B: negative equity
Settlement figure	$9,000	$9,000
Early repayment fee (included, illustrative)	$150	$150
Sale price	$12,000	$7,500
Paid to the lender	$9,000	$9,000
Left for you	$3,000	nothing
Still to find	none	$1,500

In Case B the lender receives $7,500 from the buyer, and you must find the $1,500 difference before the lender will release its claim. The buyer should not pay the seller until the lender has been paid in full.

Selling then buying again

If you are selling to buy a different car, you will need a deposit or a new loan. The cash left after payout can become your deposit. Our page on how much deposit you need shows how it helps. If you are thinking of borrowing against the car instead of selling it, read borrowing against a car you own first, because the risks are different.

How Fair Finance helps

Fair Finance is a referral service, not a lender. If you are selling your current car to buy another, one application and one soft credit check go to a panel of approved NZ lenders. Lenders decide case by case, and nobody can promise approval. We are paid by the lender only if a loan settles, and that never changes your rate. Use the quick check to start, or the repayment calculator to test a budget first.

Checklist

• Written settlement figure from the lender, dated close to the sale
• Early repayment fee asked about and understood
• Lender told about the planned sale and any contract conditions checked
• Realistic sale price compared with the settlement figure
• Plan for any shortfall
• Listing discloses the finance
• Buyer pays the lender directly, not through the seller
• PPSR checked again after payout
• Insurance and registration details updated

General information only, not financial advice. Lender processes and rules change, so check the official pages below.

Sources

• Consumer Protection: Credit Contracts and Consumer Finance Act
• Consumer Protection: Debt collection and repossession
• PPSR: Personal Property Securities Register
• Trade Me: What if there is money owing on the car?
• Unity: Can I sell a car on finance?
• MoneyTalks