Have you got a car that you’ve financed via a car loan? If that’s the case, selling your car before the end of the loan tenure can be a tricky affair. This is because when you take out a car loan, technically the car is mortgaged to your bank – meaning that unless you fully settle the loan amount and the car is lien-free, you cannot finalize its sale. Many UAE residents are unaware of this fact and find themselves stuck when trying to sell their financed vehicles.
Dubai-resident Martin Healy shares his experience:
“I bought my first car in Dubai – a Nissan 350Z in 2011. I took a car loan for approximately AED 60,000, placing a deposit of AED 5,000.
A year later, I wished to sell it. So I listed my car on dubizzle”
“After I found a buyer, I presumed that I would be able to sell the car and use the money to clear the outstanding loan amount. But this wasn’t the case. When I spoke to my bank, I was told that I would not be able to sell the car without a letter from them, confirming that the outstanding amount had been cleared. Obviously this created a problem for me, as I intended to use the money from the sale to clear the balance. I didn’t have accessible funds of my own to do this.”
An unlikely solution to the problem
So how did Martin eventually get around this issue? He explains:
“Eventually, the buyer agreed to place his money into my bank account in order to clear the balance and allow the transfer of the car under his name. This seemed to be the only solution available at the time. Once he had placed his money into my account, four to five working days later, I was able to get a clearance letter. During this time, I gave the buyer my car’s registration card for some kind of re-assurance. Eventually the balance was cleared and the car was sold!”
How can you sell a car that is financed by a bank?
- Cash from the buyer: As in Martin’s case, one of the ways you can sell a car if it is mortgaged to your bank is to request an upfront cash payment from the buyer for the settlement. But this will depend entirely on the arrangement you mutually agree on.
- Own cash: In case the buyer is taking a loan themselves and is unable to provide you with cash upfront, the situation gets slightly more complicated. The buyer can get a local purchase order (LPO) from their bank once you submit a copy of your car registration. Based on this assurance from the buyer, you can then settle your loan first and transfer the car.
- Bank buyout? In rare occasions, the settlement of a car loan is possible through a bank buyout. This may be an option in cases where the seller and buyer’s bank are one and the same. The buyer takes out a car loan and this is used by the bank to settle the seller’s loan. The car is then transferred under the buyer’s name. Both parties will need to approach the bank and acquire a no objection certificate to enable this. Also, before you commit to a car sale transaction through a buyout, make sure that you check your eligibility with your bank first, since this is determined on a case by case basis.
For some, taking out a personal loan to finance a car purchase is a preference, which is what Martin did when he bought his second car:
“When it came to buying my next car I took out a personal loan. Despite the higher interest rates, personal loans can offer much more flexibility – you won’t have to clear the full outstanding balance and take a new loan if you decide to change cars.”
But remember that financing your car purchase through a personal loan can really add to its purchase cost. So make sure that you factor this in. If on the other hand, you decide to take out a car loan, consider whether or not you are likely to sell the car before the end of your loan tenor and plan ahead!