What is an Encumbrance Car and the Risk of Buying It?

Encumbrance cars have been a topic of discussion amongst car enthusiasts, car buyers, and sellers alike. Simply put, an encumbrance car is a car that still has a financial lien against it by another entity, but it is being sold by the current owner. This type of car may come at a cheaper price, which may seem tempting, but it comes with a higher risk of financial loss. In this blog post, we’ll dive deeper into what an encumbrance car is, why you should avoid it, and what to do if you have already purchased one.

An encumbrance car is a car that still has an outstanding loan, rental or lease payment against it, and it should not be confused with a regular car loan. An encumbrance is a financial obligation that must be met before the car can be sold, and this is because the car is technically owned by the finance or leasing company until the payment is fully made. Until the debt is cleared, the title of the car can not be transferred to a new owner.

When you buy an encumbered car, you are technically buying someone else’s debt, and this comes with a risk. If you unknowingly purchase an encumbered car, you will not become the true owner of the vehicle until the encumbrance is resolved. Additionally, if you are buying an encumbered car, there is the potential for the finance company to repossess the vehicle in the future, causing you to lose both the car and your money.

It’s important to note that not all encumbered cars are being sold with ill intentions. People may need to sell their car before completing their payments for various reasons such as financial hardship or job loss. However, even with good intentions, selling an encumbered car puts both the seller and buyer at risk.

To avoid buying an encumbrance car, do your research. Car history reports provide information on whether a vehicle has a lien against it or not. You can also do a PPSR (Personal Property Securities Register) search, which helps you determine if the vehicle has any money owed against it. Always ask the seller for a copy of their title or look for information that verifies the car’s ownership. Additionally, it is always best to go through a reputable car dealer that has already cleared the encumbrance before selling the vehicle.


Buying an encumbrance car is not only a legal, but also a financial risk. It’s important to do your due diligence and research before making any purchase. Always ask for a car’s background history and verify the seller’s ownership documents. If you unknowingly purchase an encumbered car, you should consult with an attorney or seek legal advice. Remember, purchasing a car is a big investment, and it’s important to make informed and safe decisions.

Selling your car in Melbourne is a great solution for getting rid of damaged vehicles. Not only will you receive quick money and be relieved of any stress, but it’s also an environmentally friendly option too. So why not consider damaged cars for sale in Melbourne today?