Buying cars is one of the easiest things for young professionals today in the country. However there are cases when people realize that they really can’t afford the car loan or they have bought a car which is out of proportion for their income is also on the rise. There are many cases of car loan default which are highlighted in media. Trapped in such a circumstance the owners would want to sell of their cars before the finance company takes repossession and disposes it off for a very small price.
Option 1: The first option when trapped in an unwanted car loan is to speak to the financier for rescheduling the repayment so that it is within affordability limits. If that does not work out the borrower may give up the car for repossession by the financier voluntarily. The sale in this case will be conducted by the finance company in which chances of fixing the auction by insider trading is high implying that the borrower is kept out of the loop and thus looses out.
Option 2: The borrower can also try to find some one who trusts him to buy the car buy first paying off the outstanding dues. However this method has its own problems apart from the fact that finding such a customer may not be easy under such circumstances. Additionally anyone who intends to bail out the borrower in such case would obviously want huge discounts in the pricing. The actual transfer of ownership will take a bout a month as the bank will take 2 weeks to give the NOC followed by 2 weeks by the RTO to remove the hypothecation entry in the RC.
Option 3: In some cases the banks will be ready to enter into a tri partite agreement with the borrower and the new buyer wherein the ownership is till retained with the bank and the only the loan liability is transferred to the new borrower till the outstanding amount is liquidated. However the original borrower will still be responsible against any defaults in the future as the car is a moveable property whose hypothecation continues with the bank against the original buyer. The banks will charge some amount of additional processing fees and legal charges for entering into such an arrangement.
Option 4: The best way to deal with the situation is to first liquidate the loan through own funds or cash raised through a personal loan. Thereafter one can dispose the car at the best possible price and pay off the personal loan immediately. The only loss incurred in such an option includes the personal loan processing fee and the EMI for a month. But this process will fetch maximum value for a used car still under finance.
It is illegal to directly sell off any vehicle under hypothecation without a NOC from the financier and hence the borrower must first make arrangement to cater to this aspect before handing over the ownership of the car to a third party.