Struggling with car payments? Here’s how selling your car may help

If you find yourself struggling to make your car payments, selling your car may be a solution to avoid defaulting on your loan.

However, as this in-depth guide will reveal, it’s not as easy as simply putting your car on the market. Legal and financial matters come into play.

We’ll guide you through the process and help you avoid the pitfalls.

With careful planning and execution, you can sell your car, alleviate stress, and move towards a more manageable financial situation.

Tip: JustMoney’s handy vehicle finance calculator can help you estimate the monthly repayment and interest you’ll pay for your car over your chosen term.

Assess your financial situation  

Before proceeding, it’s important to assess your current situation and gather essential information.

Evaluate your options when you can’t afford car payments

Missing a payment doesn’t mean you’re out of options, but it’s important to act quickly, says Wesley Procter, operations manager at GetWorth.

Talk to your lender before your financial situation gets worse. Lenders don’t want to lose customers – in fact, they benefit when you’re able to repay your debts.

To help you, your lender may suggest refinancing your vehicle – this means extending your loan term to reduce your monthly instalments.

For example, if your car’s value is R250,000 and you still owe R50,000, your lender could consider refinancing to make the situation more manageable for you.

Other options your lender might offer include:

• A short-term loan, with your car used as security.
• A payment holiday (for example, three months) to give you time to recover. But remember, this doesn’t mean you skip the payments entirely – interest still builds up during this time, and you’ll have to pay back the full amount later.

Help is only available if you’re still earning, however – if you’ve lost your job, for example, your lender won’t be able to assist.

What to do if your lender can’t assist you 

If your lender can’t offer any relief, you might need to sell your car, even if it’s not fully paid off yet.

This can be tricky – if the car is worth less than you owe on it, you’ll be in negative equity. This means you’ll have to pay the difference, known as a shortfall, out of your own pocket.

Any offer you get when you sell your car needs to cover the outstanding loan amount, says Procter. For example, if you owe R100,000 on your vehicle but receive an offer of only R80,000, you’ll need to pay the R20,000 shortfall yourself.

One option is to take out a personal loan to cover that shortfall.

“These short-term loans typically come with a high interest rate,” warns Procter. “You need to think carefully about whether you can afford the monthly repayments.”

Also, keep in mind that a personal loan will only be approved if your credit score is still in good shape. If you’ve already missed car payments and your credit record is damaged, this may not be an option.

What to know before you sell a financed car  

If you still owe money on your car, the bank remains the legal owner – also known as the titleholder – until the loan is fully paid off. That means you can’t legally sell the car without informing your finance provider.

“You don’t have the right to just dispose of the vehicle without informing the lender in question,” says Procter. Dealerships will check the car’s registration documents, which show who the titleholder is and whether there’s still money owed.

“Some people try to sell without disclosing that they owe money on the vehicle, but they can’t get away with trying to sell under false pretenses,” he adds.

Before you can sell, you must request a settlement letter from your lender.

This document shows exactly how much you still owe, and is usually valid for about seven calendar days (five business days). It includes any missed payments and accrued interest, so you’ll need to discuss a way forward with your finance provider if you’ve fallen behind.

Determine your car’s market value

The simplest way to determine your car’s market value is to understand the cash price someone will pay for it today. You can list your car on a few online car marketplaces and immediately get a good idea of what your car is worth without having to research market value.

You can also be sure you’re offered a fair price – however, don’t accept the first offer you receive, since it’s always best to shop around.

Using a car valuation website will help you understand if the sale proceeds will cover the settlement amount (the amount still owed on your vehicle).

Selling your car privately

Selling your car privately allows you to have more control over the selling price and negotiate directly with potential buyers. Always prioritise safety during meetings with potential buyers and ensure a legal, seamless transaction.

Keep in mind that prospective buyers may be put off if the lender (the bank) is still the titleholder of the vehicle, which introduces some financial and administrative complications.

Trading in your car

If convenience is a priority, a trade-in can be a suitable option – and it’s a good way to acquire a more affordable car, says Procter. Dealerships accept trade-ins, appraise the value of your car, and allow you to buy a new or used vehicle from their inventory.

However, you may receive a lower amount for your car compared to a private sale, and trade-ins can be complex. A trade-in may not settle your full debt – and some dealers may even add the amount owing to your new loan, which could raise your monthly instalments.

It’s also worth noting that dealers can inflate the price of the new vehicle to create the illusion of a better deal, which makes it harder to compare offers accurately.

Trade-ins may also come with settlement charges and hidden admin fees, and there may be a penalty for exiting the contract early.

Selling your car to a dealership

You have the option of selling your car directly to a dealership. This may help you to obtain cash quickly, but a dealer will expect you to hand over your vehicle as soon as the sale is concluded.

It is a good idea to approach different dealerships to make sure you get the best possible offer, says Procter. “Don’t take the first offer you receive – remember, if you’re in a difficult financial situation, every R1,000 counts.”

You may receive a lower price than you would if you made a private sale, but there are fewer hassles as the dealer takes care of a lot of administrative matters.

It’s essential that, if you decide to sell via a dealership, you choose a reputable dealer. If in doubt, get a recommendation from someone you know, or check dealer reviews online.

Online car marketplaces

Online car marketplaces provide a platform to reach a wide audience of potential buyers. Websites and apps dedicated to selling cars allow you to create listings with detailed information and photos at your convenience.

This can attract serious buyers, which increases your chance of selling your car for a fair price. However, you should get three or four quotes – don’t just accept the first offer.

“If you have a settlement figure and sell your vehicle on one of these platforms, they will settle directly with the bank,” says Procter.

How to price your car correctly

Defining the right price for your car is crucial for attracting potential buyers and maximising your chances of a successful sale. Consider the following factors when pricing your car.

Research comparable listings

Research similar car models in your area to get an idea of the prevailing market prices. Compare the prices of vehicles with similar mileage, condition, and features to determine a competitive asking price.

Consider depreciation

A car begins to depreciate as soon as you take possession of it. Take this gradual depreciation into account when pricing your vehicle. Adjust your expectations if your car is older and has a high mileage – it will be less attractive to a buyer.

Factoring in upgrades

Upgrades and features you’ve added to your car may add a little to the value of your car, but you may not recover what you paid for the upgrades, so don’t assume upgrades automatically translate to higher value.

Settling your car loan

To complete the selling process, it’s important to settle your car loan with the proceeds from the sale. Follow these steps:

Paying off the loan with sale proceeds

1. Inform your lender of your intention to sell the vehicle voluntarily.
2. Ask for a settlement figure to determine how much you still owe on the car.
3. Indicate that you will sell your vehicle to attempt to settle the remaining balance.
4. If you sell the vehicle at a loss, consider how you’ll pay off the balance – a personal loan is an option if you’re not yet in default and have not been flagged by credit bureaus.

Buying another vehicle 

If you’re considering selling your car but still need a vehicle to get to work and earn an income, you can downgrade to a more affordable option.

Use the proceeds of your vehicle sale to pay off what you owe, or reduce the outstanding balance, then choose a more affordable, fuel-efficient, or pre-owned vehicle that costs less to maintain and insure.

A more budget-friendly car can keep you mobile without straining your finances – a practical way to reduce debt and still meet your transport needs.

Here’s how to buy a first-rate second-hand car.

How selling your car can improve your debt-to-income ratio

Selling your car can have a significant impact on your debt-to-income (DTI) ratio, which measures how much of your monthly income goes towards debt payments. 

While your DTI ratio doesn’t directly affect your credit score, lenders use it to assess your ability to afford new credit, and what your loan terms will be. Reducing your DTI ratio helps lenders view you as less risky.

If you have defaulted on payments, your credit score may be damaged, and selling your vehicle won’t undo that. However, if you sell your vehicle and pay off what you owe, your credit score will improve over time.

Why debt counselling matters when selling your car

Debt counselling can help you facilitate selling a financed vehicle under certain circumstances.

However, if you’re under debt counselling, you can only sell your car with the permission of your debt counsellor and credit provider.

In addition, the proceeds must first be used to pay off your loan balance before other debts are serviced.

Debt counselling can also help you to safeguard assets such as your car, since vehicle loans are included in the debt restructuring process under the National Credit Act. A registered debt counsellor can include your vehicle loan in a court-approved repayment plan.

A debt counsellor can negotiate with your creditors to lower your monthly instalments and protect you against lender repossession.

Debt counselling is only for overindebted consumers; if you are not overwhelmed by debt, there are other options to consider first. 

When to consider debt counselling before selling your car

If you’re missing car payments, falling behind on other bills, or noticing a steady increase in your overall debt, it’s time to consider professional help. 

Seeking debt counselling at an early stage can help you avoid additional penalties, mounting interest, and lasting damage to your credit score.

A debt counsellor will evaluate your situation, determine whether selling your car is truly necessary, and develop a realistic strategy to stabilise your finances.

Acting sooner rather than later can safeguard your financial future and maintain control over critical living expenses.

Tip: Find out if you qualify for vehicle finance today.