Financing at the bank is still ongoing, but you still want to sell your vehicle despite the current loan? In principle, this is not a problem.
However, there are a few peculiarities that need to be considered. For example, the procedure for selling a funded car depends on the type of loan taken out and its terms.
It makes a difference whether you do business through a car dealer that specializes in trading in debt-financed vehicles or whether the vehicle changes hands privately. And what is the best way to go about selling a funded car and buying a new one?
Clarify a few questions before selling
If a financed vehicle is to be sold, at least three partners are always involved: the bank, the buyer and borrower and the seller.
If the purchase of a new vehicle is planned at the same time, an additional lender may come into play.
Regardless of whether or not a new car should be purchased practically simultaneously with the sale of the financed vehicle, a few points should be clarified in advance.
- Ask the lending bank about the following: the amount of the remaining loan, the cost of early loan repayment (prepayment penalty, processing costs) and the processing modalities.
- Get information on the residual value of the vehicle. Use the Good Finance list to find out about used car ratings and prices. Dealers and appraisers also estimate prices.
- Are you wondering how you can finance part of the loan repayment and/or a new vehicle – using your own funds or borrowing? Find out about the credit market.
Tip: Don’t just let a dealer estimate the used vehicle. Get several offers or at least compare the estimated price determined by the dealer with the Good Finance list.
Dealers who specialize in the acquisition of financed used vehicles sometimes tend to “underestimate” the actual value of the vehicle offered.
Selling a car despite a loan: The procedure depends on the type of loan
When it comes to loan financing, car buyers have the choice:
- You can finance your vehicle with a conventional installment loan.
- The other option is to finance it with a dedicated car loan. This can be done through a third party bank, through the manufacturer’s bank or through a bank recommended by the dealer.
Financing with a general-purpose loan
There are no particular problems when financing the used car with a classic installment loan. Credit and vehicle purchases have nothing to do with each other.
The borrower and vehicle seller owns the car. He has not signed a security transfer agreement, nor has he handed over the original or copy of the Part II registration certificate (vehicle registration certificate) to any bank.
The owner can do what he wants with the car. The car can be sold, rented or scrapped. As a rule, consumer loans are not secured separately. A silent assignment of wages is almost always enough and sometimes, especially with somewhat higher sums, the co-signing of the loan contract by the spouse or another person.
However, the question of what should happen to the remaining credit must be decided. The remaining credit can simply continue to run (not recommended), it can be partially or completely redeemed from own funds or from the sales proceeds, or the remaining credit can be included in a new vehicle financing and redeemed.
A loan repayment can result in prepayment penalty that may not exceed one percent of the remaining loan amount. The prepayment penalty is only waived if a free early loan repayment was agreed in the loan agreement.
Financing with a dedicated car loan
Banks offer special auto loans, the terms of which are slightly cheaper than general-purpose loans. However, this advantage has a price. The loan can only be used to finance a specific car purchase.
And in the overwhelming majority of cases, the vehicle must be assigned as security and the original or sometimes a copy of the vehicle registration document must be handed over to the bank.
There are exceptions to this principle. Every now and then, banks are content to send you a contract copy.
The car buyer remains the owner and still receives slightly more favorable conditions. Good Credit is supposed to do this.
Since the ownership of the vehicle remains with the buyer, the buyer does not have to contact the bank when selling, unless the loan agreement provides otherwise. In all other cases, the motor vehicle remains in the buyer’s possession but is no longer the owner.
It does not matter whether he hands the motor vehicle letter to the bank. Even if the original vehicle registration document is not handed over, the bank becomes the owner upon completion of the transfer by way of security.
Here the vehicle owner has to contact the bank before a sale can take place. Banks will not want to prevent the sale. But the processing varies from bank to bank. Some banks only issue the vehicle registration document when the remaining debt, including any costs, has been paid in full.
Only then can the purchase be processed and the seller can transfer ownership of the used car to the buyer.
Other credit institutions are a bit more accommodating. You are satisfied with the purchase contract. If it is sent, they will hand over the admission certificate to the credit customer.
With the registration certificate in hand, the financed vehicle can be sold and the buyer of the used car can, in turn, apply for registration.
Important: The transfer of ownership by way of security must always be reversed if a separate transfer of ownership by way of security has been concluded. Often the banks simply send the original of the contract back to their borrower after payment of the remaining amount.
Only when this contract is canceled does the borrower become the formal owner of the financed vehicle again. As a result, the sale of the vehicle is retrospectively legitimized.