What are the Risks of Buying an Encumbered Vehicle?

Risk of Buying An Encumbered Vehicle

The point of getting a cheap REV check isn’t necessarily to avoid buying an encumbered vehicle. Instead, the point is to be informed whether the vehicle is encumbered, and make an informed decision.

For many people, discovering that a vehicle is encumbered is enough to put them off buying the vehicle completely. This is fair enough, and perhaps the safest option in the end.

For others, they’re willing to entertain the risks if they like the vehicle enough. Maybe it’s rare, a collector’s item, or simply the one they’ve been waiting for. In those cases there are many questions around buying and selling an encumbered vehicle. We’ll do our best to answer them:

Firstly, What Is Encumbrance?

A financial encumbrance means the item in question — in this case a car — is part of some sort of loan or financing option.

This could mean that a loan was taken out to buy the car, and the loan hasn’t been repaid. It could also mean that the car was used as collateral against a loan. Basically, any situation where the car is involved in money owed to a person or institution is an “encumbrance”.

Is It Legal to Sell an Encumbered Vehicle?

The very simple answer is yes. Just because there’s money owed against the car doesn’t prevent you from selling the vehicle. You can even technically use the sale of the vehicle to help pay off the associated loan.

The longer answer is “Yes, so long as you declare it.”

If you sell an encumbered vehicle and lie to the buyer about the status of the vehicle, you’re committing fraud. This, predictably, opens you up to all sorts of legal repercussions, not least of which is being sued by the prospective buyer.

What’s the Risk of Buying an Encumbered Vehicle?

The biggest risk is that the car can be taken away from you to pay the outstanding loan. If you were aware of the encumbrance before you purchased it and bought it anyway, there’s really nothing you can do.

The car will be taken and you’ll be left without the money you paid or the vehicle. You will not be able to get a refund from the previous owner, nor take legal action against them. If you buy an encumbered vehicle, you assume the risk that the car may be taken later.

But What If You REALLY Want the Vehicle?

If you’re absolutely set on purchasing this particular vehicle, then there are some steps you should take before you proceed.

Firstly, meet the buyer in person and talk to them. If you don’t feel that they’re trustworthy, walk away from the sale.

Secondly, find out what you can about the loan. Is there a lot of money involved? How does the owner intend to pay it off? Do you trust that they’ll be able to continue paying off the loan and not risk your new purchase?

Some of these details can be found by contacting the financier or financial institution involved in the vehicle. These details are included in the PPSR report so you can perform an independent investigation.

Lastly, if you feel they’re trustworthy and you feel confident in the purchase, you can go ahead and buy the vehicle.

What Happens if an Encumbered Vehicle Gets Repossessed?

There are two possibilities:

You knew the vehicle was encumbered when you bought it because you got a cheap REV check. In this case, there’s nothing you can do. You assumed the risk when you bought the vehicle.

You didn’t get a cheap REV check and the seller lied to you about the status of the car. In this situation you’ll still loose the vehicle, but you’ll at least have grounds to take legal action against the seller.

It’s an inalienable right in Australia that goods and services must be sold as described. No matter what you buy or from whom, if you were mislead about the status or capabilities of a car, you have a claim on your hand.

Note that if you do get a cheap REV check that tells you of the encumbrance, but the seller tells you there’s no such encumbrance, they’re still a chance they’re lying to you and committing fraud. Double-check by contacting the listed financial institute or financier named in the PPSR Report.

The Quickest Way to Find Out About Encumbrances

But we’ve skipped one really important step — how to find out about encumbrances in the first place! Asking the seller is certainly an option, but it’s always in your best interest to get a PPSR report.

If you’re interested in a vehicle and want to find out its history, just enter the VIN into the search bar on the righthand side of this page. You’ll get a full car history report in no time, allowing you to thoroughly examine the vehicle’s history and start formulating your plan.

Don’t get caught out with a vehicle you don’t know much about — get a PPSR report today.