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Can you sell vehicle you bought on credit before you’ve paid it off?

By Isabelle Coetzee

If you’re no longer able to meet your monthly instalments on your vehicle finance, or you decide you’d like to buy a different car, will you be allowed to sell it and settle the debt?

We got in touch with two financial experts to find out whether this is possible, and whether this is the best course of action to take in these situations.

Tip: If you’re having trouble meeting your debt payments, click here to consolidate your instalments.  

You first need to settle the debt

According to Sheila-Ann Robey, financial adviser at Lifeguards, an affiliate of Liberty, it’s possible to sell an asset you bought on credit, even if it has an outstanding balance that you owe to the service provider that has loaned you the money for the asset.

“The sale of the asset will be subject to the settlement of the outstanding credit amount, whereafter the ownership of the asset passes to you, and legally allows you to sell the asset to another party,” says Robey.

She explains that without the settlement of the outstanding amount and this passing of ownership, the sale of the asset will not be possible. However, she adds that each service provider will have their own requirements for this process.

“When you decide to sell a vehicle before you have paid it off, you will need to enquire from your finance provider what the settlement amount is that they will accept,” says Robey.

“This is in order for the transfer of ownership of the vehicle to pass to you and, subsequently, allow you to sell the vehicle, whether you are selling the vehicle privately or trading it in for another vehicle,” she adds.

Two approaches to handing over the asset

According to Lebo Nong, co-founder at Nong Wealth Property, selling an asset, such as a car, is an option to consider should the debtor be unable to afford repayment of the asset.

He adds that it’s important for the debtor to alert the creditor about their financial constraints as soon as possible. He points out two ways of going about this:

1. Sell the car to settle the remaining debt on the loan

Alerting the creditor to any financial constraints as soon as possible may present the opportunity of lower repayment plans, that the debtor may be able to continue to pay off.

However, if this option is not possible, the debtor is advised to sell the car to settle the debt. This means finding a buyer as soon as possible to avoid missed payments that may result in repossession of the asset and ultimately the likelihood of a poor credit score.

2. Find a buyer who will take over your vehicle instalments with the bank

The debtor can find a buyer who will take over the debt of the vehicle instalment. This option requires legal documentation that will facilitate and legally bind the proposed agreement of the partnership.

The debtor is advised to accompany the buyer to the bank and cancel the bank’s current contract with the debtor, then get a new contract between the bank and the buyer for the balance on the vehicle. The bank will enter into a new contract with the buyer if it approves the buyer.

If you can’t meet your debt payments, a debt counsellor could help. Click here for more.

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