What Is an Encumbered Car & What Is the Risk of Buying It?

Do you know what exactly the ‘encumbered car’ is? Nowadays sales of encumbrance vehicles have been rising in Australia. Therefore, in order to enlighten our clients about the very issue and the risk associated with it, Car Removal Cash for Car has come up with the detailed information. So, keep reading the article.

If a potential buyer finds out that a car has an encumbrance on it, they may think twice about buying it right away. This makes sense and may be the safest choice.

Some people, though, find the car appealing enough that they are ready to take the risk. Maybe it’s unusual, a collectible item, or just the one they’ve been looking for. In such situations, the buying and selling of a car with an encumbrance raises a number of concerns.

What does it mean by an encumbered car?

A car with a loan or a financing burden is said to have an encumbrance. The owner may have gotten a loan to pay for the car, and they have yet to make the necessary payments.

Cars, as most people know, can be expensive to buy. Thus, getting a loan from a bank or other lending institution is a common practice for people looking to buy automobiles.

When someone buys a car with a loan, they get a “Certificate of Registration Encumbered” (CRE) instead of a “Certificate of Registration” (CR).

Due to the CRE, the lending institution now holds legal title to the vehicle. Once the final car loan payment has been made and approved, the title can be transferred.

Also read: 

What Is The Lifespan Of A Car On An Average?

How do I know if the car is encumbered or not?

Don’t put all of your trust in anyone, no matter how reliable they seem.
Running a search through the Personal Property Security Register (PPSR) is the best way to find out if a vehicle’s title has any encumbrances or other claims on it.

Your PPSR search will tell you if there is no security interest, a single registration, or many registrations for encumbrances.

Be sure to keep on to the PPSR certificate as proof that the car was free and clear when you bought it, in case anything goes wrong. Even though this is highly unlikely, it is preferable to take a little bit of precaution.

Can I Sell My Car Even Though it has an encumbrance Against It?

To put it briefly, the answer is yes. It is possible to sell the car even if there is an encumbrance on it due to unpaid debt. Technically, the money from selling the car could even be used to pay back some of the loan.

There is little you can do if someone sells you a recalled vehicle that is already encumbered. Neither the buyer nor the lender will give you a refund for this.

If the seller falsified the title to you by saying it was free and clear when in fact it was subject to a debt, you would have legal reasons to seek a reimbursement from the vendor.

Also read: 

Why Should You Be Cautious While Scrapping Your Junk Cars To Dealers In Sydney?

What is the risk of buying an encumbered car?

When you purchase a vehicle with encumbrance on it, you accept the possibility that it could one day be taken away.
The most important warning is that if the new owner fails to make the payments on time, the creditor might take back the vehicle. Now that they are the legal owners of the car, they are responsible for making payments on the loan.

Since it is the obligation of the buyer to verify whether or not the vehicle is subject to any encumbrances, there is nothing that can be done in this situation.

Both the money you paid for the car and the car itself will be repossessed from you. The prior owner will not be liable for any refunds or legal actions you take against them.

Also read: 

Buying A Used Car Vs. Brand New Car: Which One Is Better For You?

What if the vehicle is worth the risk?

There are things you need to do before moving forward with the purchase of this vehicle:

  • Initially, it’s important to have a face-to-face discussion with the potential buyer. Don’t buy from them if you have any doubts about their reliability.
  • Do as much research as possible on the loan itself. If there is a repayment, how much is it? Exactly how does the vendor plan on paying back the money? Do you believe they will be able to keep up with the loan payments so that your new investment won’t be jeopardized?
  • You can get some of this information by contacting the vehicle’s financier or financial institution. The PPSR report contains this information for the purpose of allowing you to conduct your own inquiry.
  • Finally, you can buy the car from them if you have faith in their honesty and the quality of the vehicle.

What happens if a vehicle with encumbrances is repossessed?

In such a case, two scenarios are possible:

  • If you got a discounted REV check, it’s because you were aware that the car you were buying was already in encumbrance. There is currently no way to change the situation. If you buy a used car, you know the risks involved.
    The vendor lied to you about the condition of the car and didn’t give you a discount on the REV check. You’ll still end up without the car, but at least you’ll have legal recourse against the seller.
  • It’s important to remember that even if you get an incredibly cheap REV check that reveals the encumbrance and the seller still claims there isn’t one, the seller might be misleading you and committing fraud.
    It’s best to verify everything by calling the PPSR-reported financial institution or lender.