Upgrading a Car with a Car Loan


If you’ve ‘outgrown’ your car, but not the finance owing on it – here are the answers…

Car loans can often last longer than cars last their drivers: Your four-year-old car still has a year of repayments on it but you want the latest model. Or maybe, your family has grown since you bought that small car on finance? The list of reasons and situations goes on…

In this article, we clear up some common questions about upgrading cars with car loans.

My car has money owing on it but I don’t want it anymore. What can I do?

People ‘move’ cars with finance on them all the time. In a nutshell, you’ll need to pay the loan out with the money you receive from selling or trading your car in. To sell a car with finance owing on it, you must speak to your lender beforehand to avoid breaching your loan contract.

To sell or trade in the car, you’ll need a payout figure – the actual amount of money needed to be paid to finish the loan on the car you’re parting ways with. Again, you’ll have to contact your lender to receive these details.

With that information, you’ll know how much of your current car’s sale price will have to go to paying off the car loan it’s attached to.

What if the payout figure is more than the value of the car?

This is called ‘negative equity’. For example, you owe $12,000 on a car that you are only able to sell for $10,000 – the amount owing exceeds the value of your car.

As with all car loans, the lender will have ‘security’ on the vehicle. This means that if a borrower doesn’t pay the loan back, the lender can repossess the vehicle. In other words, if you sell the car, you’re selling the lender’s asset and breaching the contract agreement.

In this situation, there are two options – AFTER advising the lender of your intentions and confirming the payout figure.

Selling the car privately:

  • If the buyer is paying cash, you will need to send those funds to pay out the loan.
  • If the new buyer is buying the car with finance, their lender will not allow them to purchase the car for less than what is owing on the loan, as they will not be able to take it as security as per the paperwork.

Trade your car in at a dealer:

  • A licenced dealer dealer will pay out the remaining balance to the lender when they receive your vehicle. Depending on the agreed price, you may need to make up the remaining balance in cash.

I want to sell my current car which has finance owing on it and buy a new car with a car loan.

Similar to the above situation, you’ll have to speak to your lender and likely trade the car in with a licenced dealer.

If you have negative equity, as discussed above, the dealer will add that amount on top of your new loan.

For example, you trade in a $10,000 car with $12,000 owing and take out another car loan to buy a $20,000 car.

The dealer uses the $10,000 value of your previous car to pay out the previous loan, adding the remaining $2000 to your new loan. You now have a $20,000 car with a $22,000 loan (the extra $2000 is from the previous loan).

Tip: Always make sure to compare car loans as rates and repayments can change if the loan amount exceeds the vehicle’s value.

Can I sell my current car which has money owing on it privately?

Yes. You’ll have to make sure that all parties concerned are aware of your plans. If you have a smaller amount owing on the loan and decide to sell the car, you can use the money you receive from the buyer to complete the loan.

The buyer should be made aware that there is money owing on the vehicle they are buying.

These details are recorded on a PPSR [https://www.ppsr.gov.au/]. The Personal Property Securities Register provides reports on all road vehicles in Australia. The report includes critical information such whether the car has ever been reported as stolen, written off or if there’s any finance owing on it.

The Right Choice

The ultimate goal is get you and your family from A to B safely, comfortably and reliably. If you’re thinking about upgrading your car, use a car loan calculator to get some ideas. These online tools provide quick and simple answers without obligations.

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