Automotive Finance Question

[Deleted User]

Lets say that I know a person that wants to sell me his car. He financed the car through his bank in 2008, and he is currently making payments on the car. Times are getting tough and feels that he could no longer afford the car.

He still owes $36,000 to the loaning bank. He wants to sell the car for $24,000.

My understanding is this car does not belong to him because he still owes the institution that loaned him the funds. Would a bank allow this sale to go through at the selling price of $24,000 and the seller would then owe the bank the remainder of the loan? Of course, the $24,000 would be paid to the bank, not the individual. Would any finance analyst or loan officer approve such a transaction? Why or Why not?

I want to give thanks in advance for any information that I could attain.
Halen

KASR

With a lien on the car, I don't think it's "really" his. You might just scroll into your local bank and ask how it works - the loan officer should be able to tell you lickity split. Or google up selling a car with a lien.

PhantomOG

I seriously doubt any of those situations would work. His original finance company/bank has the title to the car and will not relinquish it until the loan is paid in full or the car is repo'd and resold. There's no way they will hand over the title and accept an IOU for the difference with no collateral -- and you need the title to be able to get financing of your own.

tcrossma

PhantomOG wrote: »

I seriously doubt any of those situations would work. His original finance company/bank has the title to the car and will not relinquish it until the loan is paid in full or the car is repo'd and resold. There's no way they will hand over the title and accept an IOU for the difference with no collateral.

+1. No chance of it happening. The original loan has to be paid off before the title will be released.

Edit: He could potentially take out a personal loan with the bank (very likely at a higher interest rate) that can then be added to the amount you pay, thus allowing the original loan to be paid off and the title released. But one way or another, the original loan will need to be paid off.

thuffman03

tcrossma wrote: »

+1. No chance of it happening. The original loan has to be paid off before the title will be released.

Edit: He could potentially take out a personal loan with the bank (very likely at a higher interest rate) that can then be added to the amount you pay, thus allowing the original loan to be paid off and the title released. But one way or another, the original loan will need to be paid off.

+2. Bank has to be paid in full first for them to transfer the title.

All I have to say is wow that car lost a lot of value in the first year or he either did not have much of a down payment or rolled another upsidedown lown into this car.

heiney9

No because the bank won't release the lien until the outstanding amount has been satisfied. The banks doesn;t care where the money comes from but the note has to be paid in full before he can transfer title to you.

Also if the car is repo'd and sold for less than the balance of the note; your friend is still responsible for the difference. On the flip side if they sell it for more than the balance owed the bank MUST give your friend the difference. (of course this is after all fee's are paid).

This is to prevent people from walking away from a very expensive item (boat, car, snowmobile, jet ski, bus, home, etc) without any consequences other than a poor credit rating. One still owes the difference so make sure he doesn;t just walk away from what he owes.

H9

Jstas

The only way you are getting that car is to apply for a loan for $36K to take over teh loan. If you don;t get approved, you're SOL.

If he sells you the car, drops $24K on the bank and still owes $12K, it's fraud.

Besides, what happens if he decides to default on the remainder of the loan? Guess who loses the car. And you would have no legal recourse because you need a title to transfer ownership and the bank has that. The only thing your buddy owns in the deal is a debt load and who wants that?

[Deleted User]

Thank You very much once again. I did not think such a transaction could occur, or any financial institution would do so.

Halen

shack

It never hurts to ask the bank what they will do.

If the guy is upside down because of the very liberal practices of many auto lenders (ie; rolling deficit balances into new loans, financing greater than the value of the car before depreciation, etc) they may have no choice to take the deal IF several things are in play...and these are BIG IFs. If the $24,000 is market value or greater of the vehicle...AND...if there is ample proof the borrower cannot/isn't able to make the payments and has no other assets to cover the short fall...AND IF...they think default is imminent they may work out a deal to keep from having to repossess and then sell the vehicle for less than what you are willing to pay plus expenses. A vehicle short-sale if you will. Again a lot has to be in play for that to happen.

Second, if the borrower is able to secure the shortfall , or qualifies for the amount unsecured, and qualifies for the terms of that type of loan they might allow the sale if it is for true market value.

It never hurts to ask...but then again may not be worth the hassle.

vlam

It's very simple. Tell him to call his lender and ask the lender this question. "I want to sell my car, what do I need to do?".

The quick and simple answer would be.

Send a payment for the balance and he will get the title in a few days. If you are giving him a check of $24K, he need to cover the other $12K. Your and his check will be made payable to a lender done at the bank or notary. There is usually some lag time in you getting the title that is why people don't usually like to buy expensive car privately when there is no title in hand.

coolsax

This is the stuff that drives me crazy.. WHY in the world would you get into a 36K loan on a car that you likely won't be able to afford in the short term.. I'm in finance and I see so many people who go out and get a 30+K car with a $500+/mo payment who can't really afford it.. drives me nuts. This situation shows he must have been massively upside down in his previous car to boot as you can get a new car with decent discounts so that you don't end up 12K upside down within a year.

jdwmap

If he can't come up with the other 12k and is hurting financially, he and you would be better off letting them repo it. Save yourself the headache and the potential loss of a friend over what could easily become a bad situation.