Over the past few years, there has been a common vision of online automotive clubs and groups – it’s called “taking on the balance”.
What is this rather unusual car transaction? More importantly, is it worth asking yourself if you are the one who sells or the one who buys?
What does the balance assume?
“Assumes balance”, also known as “pasalo”, occurs when a vehicle that is still in the middle of its term loan is sold by the lender (the person to whom the bank granted the car loan from origin). The buyer then takes over the car loan and pays the balance to the bank according to the repayment schedule.
It has become common practice despite the fact that auto loans in itself, cannot be assumed, which makes any transaction of this type technically illegal.
If you have to get rid of your medium-term auto loan because you can’t afford the monthly payments, you can either return the vehicle to the lender or sell it as a “deemed balance”.
If A is not an option for you (thinking about all the monthly payments that go wrong gives you heartburn) you can do B. However, this will depend on the bank’s approval and be aware that ‘there will be risks.
According to a retired executive, “some (financial institutions) can authorize and others cannot”.
The responsibility for asking for permission rests with you, the lender. If the bank allows it, the buyer goes through the same credit investigation process. They must also submit the same required documents from the original borrower.
Once the bank agrees and everything is in order, there is good news for everyone. You no longer have a mortgage, and the buyer’s capital will likely be much less than what you used to pay.
It would be in the interests of both the seller and the buyer to obtain their copies of the written consent of the bank, as 2017 has been notoriously known for “deemed balance” cases in which banks have returned money. vehicles weeks after buyers have “paid for” them. It turns out that the sellers who were on the verge of defaulting on their loans chose to sell their cars instead of returning the unit to the bank.
But what if the bank says no? Should you still go ahead and sell the vehicle? You can, but know that this deal can go wrong in many ways.
As a seller, you risk a lot more. The bank can prosecute you for selling and removing the vehicle from your premises without their consent, as this violates the chattel mortgage contract, and you will be the one who will end up with a bad credit rating if the buyer does not perform monthly payments. .
If the buyer waives the amortization, the bank will approach the seller to seize the mortgage and repossess the vehicle. This is because the sale did not have the consent of the lending institution. As a seller, all you can do is demand that the buyer pay the mortgage or ask for the absolute deed of sale to be set aside immediately. With this, the vehicle can be returned to you, for turnover to the bank.
If the buyer doesn’t comply, plead and beg because the alternative, a lawsuit, will take a very long time and cost a lot of money.
Whatever you do, DO NOT play repo man and try to personally take the vehicle away from the buyer. Remember that you have assigned your rights in the deed of absolute sale. You will be in a difficult situation because you are still legally obligated to pay for a vehicle that you no longer legally own. That being said, you can do so IF you got them to sign a chattel mortgage in your favor.
Buyer, this is your situation. Without the bank’s consent, the vehicle cannot legally be sold to you. You can sign an absolute bill of sale to protect your purchase, but make sure it states that the vehicle is still mortgaged at the bank and state the terms of payment. This will help you retain ownership of the unit, subject to the bank mortgage, which means you will take over the seller’s remaining balance with the lender.
If possible, arrange to pay the bank directly instead of sending monthly checks to the seller. This way, your purchase is not dependent on the diligence or delinquency of the seller.
Now let’s see if this vehicle is worth all the hassle.
If the device is still under warranty, that’s a big thumbs up. At least buyers are assured that if a component fails due to a “material defect” (failures without outside influence), it will be replaced free of charge. Of course, the warranty does not cover consumable parts like brake pads, air filter, oil filter, etc. In addition, request the vehicle service book from the dealer who delivered the unit.
On the vehicle itself, here’s what buyers should check out:
-Check the tires for tread wear. Take out a small ruler and see if the tread is at least 1.8mm deep. Otherwise, haggle for a new set.
-If it has manual transmission and the mileage is less than 20,000 kilometers, the gearbox should be ok. Have a mechanic check to see if the vehicle is about four years old or has driven more than 80,000 kilometers.
-ATs are more resilient unless used as TNVS (Transport Network Vehicle Service, Like Grab). A three to five year unit should be fine.
-Alternator and compressor drive belts should be replaced every 60,000 kilometers or every three years, whichever comes first. Timing belts last only 80,000 kilometers, while timing chains can travel at least 100,000 kilometers.
-Brake pads on ATs must be changed after 20,000 kilometers; MTs at 40,000 kilometers.
-Drive the vehicle over bumps. If the shocks bottom out on the way out, you will need a new assembly.
-Vibration and slight clicking through the flywheel can signify a tie rod or rack end problem. Have it carefully checked.
-If you hear squeaking or clicking noises, the bushings may require replacement.
A note to sellers
It doesn’t make sense to stay on a loan you can’t afford. If you are in this situation right now, contact your bank as soon as possible and find the easiest and cheapest arrangement. Remember that the bank does not want to repossess the unit because it is a loss for them. They want (monthly) payments, and if you don’t have them but give them a sufficient explanation, they might let you find someone who does.
Remember the basic legal jargon above, and remember to follow all the necessary steps to avoid becoming the target of legal action.
You’ll be dealing with banks, so this isn’t one of those times to pretend until you get it right. Make sure you dot all of the i’s and cross all the t’s because you know what they say, “assume” makes a fool of you and me.