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Can I use a car loan to buy a car privately?

Can I use a car loan to buy a car privately?

If you’re on the hunt for a car and looking outside of a dealership for options, you may be wondering if you can use a car loan to purchase a car privately.

In Australia, you can use a car loan to purchase a new or used vehicle from a dealer or a private seller. However, it can be a slightly more involved process when buying a vehicle from a private seller.

What to organise when buying a car privately

When using a car loan to purchase a vehicle from a private seller, you may need to have a finance inspection performed for the lender to approve your loan application. A third party may be able to assist with this process, which can include:

  • PPSR check & VIN number check
  • Registration check
  • Compliance plates
  • Vehicle photos
  • Details of safety issues or pre-existing damages
  • Valuation

As the buyer you will want to discover if the car is currently registered. While it’s not illegal to purchase an unregistered vehicle, you’ll need to factor in this additional cost to your budget. Plus, you’ll need to arrange for the car to be towed or apply for a short-term Unregistered Driving Permit to take it from the seller to your home

In some states in Australia, sellers may be legally required to make safety certificates available before the car is advertised, or before the sale or transfer of registration occurs. What is legally required when buying a car can differ per state or territory, so it’s worth checking your local authority before you sign on the dotted line. You may want to have your mechanic perform a full vehicle inspection on the car before you purchase it as well.

Most importantly, you will need to conduct a Personal Property Securities Register (PPSR) check on the private sale vehicle to discover if there is finance owing on the car. If your car loan application is approved and of there is no finance owing, then you may proceed with paying the seller for the vehicle. If there is finance owing, then you will need to ask the seller for a financier payout letter

Your car loan lender will pay the sellers’ lender first for the value indicated on the payout lender, with any leftover funds then paid to the seller. Many lenders will work with the seller directly, so you don’t have to, so it’s worth checking with your provider if they offer this service before you proceed.

Private car purchase checklist

FairTrading NSW recommends the following steps for purchasing a car privately:

  1. Ask if any money is owing on the vehicle.
  2. Get the registration number, engine number, serial number, and vehicle identification number (VIN).
  3. Confirm that the registration number, engine number, serial number and VIN on the vehicle match those on the registration papers.
  4. Visit the PPSR website or call 1300 007 777 to complete a vehicle search with the serial number and VIN.
  5. Purchase a PPSR search certificate to guard against repossession.
  6. Check your options with PPSR if the current owner has a debt owning on the vehicle.
  7. Complete the transaction before midnight the next day.

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This article was reviewed by Personal Finance Editor Mark Bristow before it was published as part of RateCity's Fact Check process.

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