Selling a car with an existing loan Step by Step Guide

In today’s world, it has become easy to obtain credit from a bank to buy a car. However, selling a car with an existing loan is not an easy process. Here is a step to step guide on how to sell a car with an existing loan. You need to keep in mind a few things while putting your old car up for sale. When you put your car for sale, official paperwork and finding a suitable buyer are the most important things. You need to be very patient with the paperwork part. 

Let’s find out how old cars for sale start their deal. 

Two situations arise when you put up a used car for sale that too with a vehicle loan. Either you can settle the loan with the bank and then sell your car or you can find a buyer who is ready to get the loan transferred in his/her name. Whether you’ll be able to go through with the latter, will depend on your loan transfer policy. Getting the hypothecation on your car removed is a long but safer process. For the transfer of a loan, you need to have a good amount of trust in your buyer.

What is hypothecation?

When your car has an existing loan, the Registration Certificate of the car will have a line-‘hypothecated to respective bank’ on it. Hypothecation means ‘pledging an asset’. This means that till the loan is paid off, basically the bank owns the car.

If you have enough money to settle the loan, you can obtain full ownership of the car and then sell it. Read on to know all about the process.

Selling a car with existing loan

How to sell a financed car: Documents needed

While you put up your car for sale, you need to produce the following documents:

Individual Documents-

Address Proof, 2 passport size photographs, PAN card 

RTO Documents-

Form No.28 (3 originals), Form No.29 (2 copies), Form No.30 (2 copies), Sale Affidavit (One Copy), Clearance Certificate (One Copy)

Car Documents-

RC (Registration Certificate), PUC (Pollution Under Control Certificate), Insurance, Application Of Insurance Transfer (Only required if insurance is to be transferred to the buyer), Invoice Of The Car (Only required if there is a mismatch in the RC details), owner’s manual, and duplicate car keys.

But a third party is involved (Bank) here. You will also need Form 35 (2 copies) and NOC (No Objection Certificate) from the bank. Getting Form 35 and NOC from the bank should be the first step when you put up your old car for sale. 

Steps to get hypothecation removed on a financed car

Pay a visit to the bank where the loan was issued

To get the loan foreclosure documents, specify the amount of loan pending. The banks levy a financial penalty for early payment of the EMIs (Easy Monthly Installments). 

Settle the loan

As per the procedure specified by the bank, settle the remaining amount of your loan. After this is done, you will receive a NOC and two copies of Form 35. You will receive these documents at your registered address. However, you can also visit the bank and get the documents yourself. 

The time period for obtaining these documents varies from 3-30 working days as per the bank’s policy. In case you misplace your NOC, you can ask the bank to provide a duplicate one. The bank will charge you a fee. But the time they will take to issue a duplicate NOC is not definite. It may take weeks.

Submit the documents to RTO 

After this, you have to submit all your documents mentioned above to the Regional Transport Office (RTO). Here also, you need to wait for another 2 weeks. The registering authority will make a background check for the transfer of ownership of your car. When the ownership is transferred, your work is done. 

Car Documents | Selling a car with existing loan

How to transfer the existing loan in the name of the buyer

Finding a buyer for your car for sale, who will take over the loan repayment is also a method. But there are certain limitations. You need to make sure that your loan is transferable.

Check the loan documents and contact your bank as well. Be 100% sure before taking this road. 

However, the price of the car will immediately decrease when you will sell a loan along with it. How much the price decreases depends on how much the loan is left to repay. 

You need to run a thorough check on the buyer’s credibility. If you’re facing a problem in finding a suitable buyer, you can contact car dealerships as well. 

The buyer will have to submit a letter requesting transfer of loan, ID proof, address proof, and income proof to the bank. The bank will run a thorough check on the background of the buyer before issuing NOC.

This will take some time. After receiving NOC from the bank, you can move ahead with the transfer of ownership. For this, you will have to follow the same procedure as mentioned in the previous section. 

Auction the financed car through a bank

You can also ask the bank to auction the car for you in case you are facing a financial crunch. However, this is not a very wise thing to do. Because you may receive money just enough to cover your loan or maybe less. 

So that was your guide on how to sell a car with an existing loan. Make sure the vehicle is kept safe before the transfer of ownership is made. You will be responsible for any damage that happens to the vehicle before the transfer. Along with this honesty and transparency is also important. While putting your old car up for sale, your credibility is also important. Take care of these things and selling a car is not very difficult for you.

Also Read: Modifications in Scrappage Policy along with the Country on AutoFlipz Blog page.

Simi Shukla

A content writer who loves cars, coffee, music and learning about new things.

One thought on “Selling a car with an existing loan Step by Step Guide

  • October 9, 2021 at 2:34 am

    You made some respectable factors there. I seemed on the web for the issue and found most individuals will go together with with your website.


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