As of 2026, on average 1 in 4 Australians (26%) will use a loan when purchasing a car. As a result, it’s not uncommon to encounter a used car that is under finance when buying from a private seller. Buying a used car that’s encumbered can be safe if you take the right steps to reduce your risk.
“Under finance” also referred to as “finance owing” or “encumbered” means that a car has an outstanding loan on it. Essentially, the current owner hasn’t fully paid off their loan and the lender still retains a financial interest in the vehicle. Even if you purchase the vehicle, if the existing loan isn’t settled and the person were to default on the loan, the lender still has the right to repossess the vehicle.
Fortunately, buying a car under finance is generally safe provided you complete appropriate checks and follow the correct process.
When you’re buying a used car, one of the first things you should do is run a PPSR check. The Personal Property Securities Register (PPSR) is an online database run by the Australian government that allows you to search for a vehicle and view information such as finance owing and if the vehicle has ever been written off or reported stolen.
Conducting a PPSR check is affordable and accessible through the government’s website. Search the vehicle you’re interested in purchasing for just $2 using the Vehicle Identification Number (VIN) or chassis number.
Bonus Tip: Even if the current owner of the vehicle is upfront in disclosing that their car is under finance, it’s recommended that you still run a PPSR check to validate and ensure there are no other concerns with the vehicle.
*Excluded in Tasmanian registrations
While it's entirely possible to safely buy a car that’s under finance, there are some additional steps you need to take to reduce your risk.
Don’t rely on the seller to tell you the truth. Running your own PPSR check is a quick and affordable way to source important information about a vehicle, and will allow you to make a more informed decision about whether it’s right for you to proceed with a sale. If a vehicle has finance owing, it will appear under the “PPSR Registration Details” section of the report. While it doesn’t list how much is owing, it will give you the details of the financier.
Start communicating early on with the seller to understand to whom and how much is owing on the vehicle. It’s okay if they don’t know exact amounts at first. As part of the purchase process, you should always insist on a final payout figure supplied directly from the financial institution responsible for the encumbrance – note that if you are purchasing a vehicle with your own financing (e.g. you’ve got a car loan), your lender may handle this for you by working directly with the seller’s lender.
Once you receive the relevant information, including the final payout figure from the lender, ensure the figure is no more than 24 hours old and if it is, ask that the seller contact the institution to request the current figure. Don’t trust a seller who isn’t willing to provide this information. Once you have the final payout figure, you can pay the lender directly before contacting them to request a letter of discharge.
Once you’ve gathered all of the information, including the amount owing, to whom and the letter of discharge, it’s time to pay out the remaining balance to the original lender. When you’re ready to make the purchase, either yourself or the seller will need to request a final payout figure from the lender. Once you receive this, ensure the figure is no more than 24 hours old, and if it is, reach out to request the current outstanding balance. Request a receipt or proof of payment to ensure the funds have been received.
If the purchase price of the vehicle is more than the outstanding amount on the loan, pay the original lender first before paying the seller the remaining balance.
After you – or your lender if you are using one – make the final payment to the original lender, request a letter of discharge. A letter of discharge is a formal document where a lender or financial institution acknowledges that they are releasing the encumbrance on a vehicle. If you don’t receive this after 5 business days, it’s recommended that you follow up directly with the original lender.
Tip: A couple of weeks after purchasing the vehicle and receiving proof of payment, conduct another PPSR check to ensure that the previous lender has removed their encumbrance on the vehicle.
Note that this is general advice and PPSR/letter of discharge timing may vary.
Once you’ve paid the lender and the seller, it’s time to finalise the transaction. The rules for how to transfer ownership of a vehicle will vary slightly between states. Typically, in Australia this process can be done entirely online.
After you’ve settled the cost of the vehicle with the seller, you’ll need them to supply you with some important documentation. Without this, you may not be able to complete the transfer of the vehicle to your name.
From the seller, you'll require:
You'll also need:
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