When buying a car from a private seller, there is the potential for buying an encumbered car. According to Australian laws, the buyer is solely responsible for determining if the vehicle is free from any secured interests. That's because they've put in place measures that you can easily check to verify these details. If you choose to forego checking, then you have no recourse if a financial institution tries to recover their lost revenues because the owner defaulted on the loan.

Therefore, whether or not you know about the encumbrance at the time of the sale does not protect you from the implications of having bought the vehicle. So, how can you protect yourself?

Get a PPSR Check to see if there is finance owing

Just as you can check the car's write-off status and any damages and mechanical issues, you can also check if there's finance owing on the vehicle. Financial institutions are required to register any secured interests in personal property with the Australian Personal Property Securities Register (PPSR). This means that once they have a loan on a vehicle, they should record the details of the loan with the PPSR. This allows persons to search the register and get the necessary details about whether there is finance owing before going through with buying the car.

What does this mean for you?

Buying a vehicle with finance owing does come with some risks for you, including those we outline in this post on encumbered vehicles.

If you buy a vehicle that has finance owing and the previous owner fails to complete payment of the loan, your vehicle is still considered the collateral for the loan if it has been registered with the PPSR.

When you run a PPSR Search and it returns a PPSR certificate, this is your legal record of the date and time of the search to protect you if a situation arises after the sale. The PPSR search results will outline the details of the encumbrance as well as other relevant car history information you should consider.

What to do before buying the vehicle?

There are a few things you can do when buying an encumbered vehicle.

1. Get an official PPSR Search Certificate

As close as possible to the date of the sale, ensure that you get an official PPSR search certificate. If it doesn't show any finance owing, make sure to keep this document as your record that at the time of the sale there was no interest registered on the PPSR by any financial institution. This could protect you as an innocent buyer.

2. Complete the purchase with the financial institution

If the PPSR certificate shows encumbrance and the seller confirms that they will repay the loan with your payment, then the best thing to do is do the transaction at the financial institution. With this, all persons involved in the sale can witness the repayment of the loan and the simultaneous transfer of ownership of the vehicle to you.

So, protect your investment the best way possible. Get a PPSR search to make sure there is no finance owing on a vehicle before you make a costly mistake.