Insights for consumers
If you borrow money to buy a vehicle, any loan and security agreements will state that you are not able to sell the vehicle without the lender’s consent. If you do, the lender can repossess the vehicle from the new owner, sell it to repay the debt, and require you to pay any shortfall.
Risks for buyers of privately sold vehicles
If you are considering buying a privately sold vehicle, check the Personal Property Securities Register (PPSR) to see if there is any money owing on it.
If you buy a vehicle that has money owing on it, you could end up losing the vehicle and the money you paid for it.
Leighton borrows money to buy a tractor
In early 2023, Leighton* bought a tractor with a loan of $50,000. The lender took a security interest in the tractor and registered this on the PPSR.
Selling the tractor with money still owing on it
A few months later, Leighton sold the tractor to a business for $25,000. From this amount, he paid $20,000 towards the loan. This put him temporarily ahead on his loan payment. However, Leighton did not tell the lender that he had sold the tractor. The business that bought the tractor did not check the PPSR to see if there was any money still owing on it. [ST1]
In May 2024, the loan was in arrears. The lender tried to contact Leighton by phone, email, and mail, without success. The lender then discovered that the tractor had been sold. They contacted the purchaser and told them that:
- the tractor was security for a loan that had not been repaid, and
- the lender intended to repossess it.
The purchaser contacted Leighton, who then contacted the lender.
Lender moves to repossess tractor after contract breach
The lender told Leighton that, by selling the tractor without telling them, he had breached the loan contract. Leighton said he would apply to his bank for a loan to repay the lender. He wanted to avoid the tractor being repossessed from the purchaser because they had threatened legal action against him.
Leighton initially struggled to get a loan. The lender said that they would repossess and sell the tractor, and apply the sale proceeds to the debt.
Leighton complained to FSCL, saying the lender wasn’t giving him a reasonable opportunity to resolve the situation.
Was the lender acting fairly?
After reviewing the lender’s records, we considered that they had acted reasonably and fairly. We explained to Leighton that:
- the loan agreement clearly stated that the tractor could not be sold without the lender’s consent
- Leighton remained responsible for the debt, even though the tractor had been sold
- if a vehicle is sold while money is still owing on it, the lender can repossess it from the new owner
- if there is still a debt after the vehicle is sold, the lender can recover the remaining amount from the borrower.
What was the outcome of FSCL’s investigation?
Leighton accepted what we had to say.
Fortunately, Leighton was able to secure a loan from another bank, and he repaid the full amount owed on the tractor loan. The lender discharged their security interest, and the purchaser was able to keep the tractor.
