Can You Sell Your Car While Still Paying It Off?

You are three years into paying off your car and either need a downgrade or want something new, can you sell your car?
Sherryn de Vos
2017-05-10
With the South African economy being downgraded into junk status and the cost of living going up, many people are considering cutting down on monthly expenses. Downgrading your car to something more affordable is certainly one of the measures you can take. The question is, can you sell your current car for a different one while it is still being financed by an institution? Should you be paying monthly instalments to a bank, the car will only really become totally yours once the term is over. We take a look at what steps you should take to ensure that you can legally sell a car that is still under finance. We also provide some helpful hints for you not to lose out in the long run.
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Find Out How Much You Still Owe

The first step is to find out how much you still need to pay in for the car. Call your financial institution and ask them to send you your current outstanding balance. You will need to know what this amount is in order to balance it with what you still owe on the car. Request a settlement letter and formerly inform them of your intention to sell the car. Should you be selling the car privately, the settlement letter, that you requested from the bank, will come in handy. It will leverage your asking price and will also provide proof that the car is not stolen. You will need to know what the current book value is for the car, as you will not be able to sell it for what you bought it for. If you price the car too high, you will battle to get a buyer. Make sure that you request the interest rate to include the final amount, as well as any settlement fee that they might include.

Keep Depreciation In Mind 

You will need to keep in mind that your car will not be worth the same that you bought it for. Your car will lose around 19% of its value in the first year alone, and will steadily depreciate from there. In fact, it is thought that the car will start depreciating within six months of owning the car. By 18 months, you can expect a sharp decrease in value of your car. Once you receive the outstanding amount, you will need to do your research on what the car is currently worth. You will need to get the book value of your car.

Work Out When You Will Hit Break Even

Should you sell your car too early, you will land up losing quite a lot on the car and will find the whole exercise futile. Trading in a car at the breakeven point usually results in the client paying in on their finance contract. This is due to the vehicle depreciating faster than what they have paid toward the loan. Say, for example, you sign a 72-month agreement, the breakeven point is usually only around 48 to 52 months! According to Westbank statistics, the average motorist will sell their car at around month 38. This will put them about 10 to 14 instalments out of pocket. So, the trick is to sell the car right after this breakeven point.

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Figure Out If You Are Trading In Or Selling

You will need to decide whether you are trading the car back into the dealer, or whether you will be selling it privately. Both come with their own benefits as well as risks.
Rudolf Mahoney, Head of Brand and Communication for Wesbank, had the following to say. “Selling privately takes a bit of patience, but the rewards could be very worthwhile. It used to be a complex process, but now we have systems and products that assist both private buyers and private sellers. If you can sell your car and break even in your current finance deal, then you're one step closer to getting a more affordable car that suits your budget - all without paying for the privilege."