You have to ask yourself, is assuming someone’s responsibility worth all the hassle?
Assume balance or what is otherwise known as pasalo, is a type of sale that involves three parties instead of two. A buyer, a seller, and the lender are part of an assume balance sale, and while it is not illegal to do so, it comes with a few pros and cons.
Related: Is it better to buy a car with financing or with cash?If a buyer cannot make payments to the bank, instead of losing their money, they can opt for someone else to shoulder the payment for the vehicle instead of the car going back to the bank.
Assume balance typically includes a buyer, a seller, and the lending bank or institution that loaned the money out for a financing deal. This means that the seller is still in the middle of their amortization payments for the vehicle, buy cannot shoulder the rest of the payments. Whatever the reason is, their vehicle is put up for sale, along with the responsibility to shoulder the rest of the cost.
Related: What happens if you miss a car loan payment?Whenever you participate in an assume balance sale, you are expected to pay the seller a certain amount, which usually coincides with the amount that they have already paid. Following that, and with the vehicle that you receive, you will shoulder the rest of the amortization payments that the seller has not paid yet to the bank. An assume balance sale is usually posted by a seller if he or she cannot commit to the rest of the payments from the bank. Not being able to pay the rest of the balance will mean that the loan defaults and the vehicle will get repossessed. Hence, it’s likely in the seller’s best interest to sell the car to another party that can actually pay and that will find a use for the vehicle instead of defaulting on the loan. This act is considered legal if the bank agrees with the sale.
Usually, in the pasalo or assume balance listings, you will find a few numbers that you need to decipher, which is the market value of the car, the monthly amortization payment, and the remaining months left to pay. The market value of the car can be negotiated based on the condition, and the total amount already paid for by the seller. Some sellers post their prices based on the number of payments they’ve already made summed up with their downpayment.
Before you enter into the sale, make sure that you know that the seller has acquired permission from the bank to sell the vehicle along with the payment plan over to you. There are two legal requirements that you need to get before you assume the balance of a vehicle you’re making a purchase on.
The first is that you need to make sure that the loan contract is transferable. Make sure to read the contract carefully when given the chance to and make sure that the bank doesn’t have a provision in the contract that prohibits the assume balance sale. Usually, most loan contracts for vehicle sales are non-transferable, but depending on the bank, it may be.
Then you must secure the consent of the bank to enter into the assume balance sale, and you need to have that registered and the respective registry of deeds. Typically, you will need to secure the bank’s written and formal consent to enter into an assume balance sale. If you’re the buyer, make sure that there is a document present for the consent of the bank. Regardless if the seller says no bank approval needed, you need to make sure that all parties are involved in the sale otherwise you will run into a few problems legally speaking.
With a lot of complexity and at least three parties involved, getting into an assume balance sale is quite the risk. There are a number of scams out there in an assume balance sale that involves either the seller or the buyer. For sellers, make sure that the person you are buying the vehicle from is 100 percent honest with you during the transaction and especially with regard to the payment schedule and the remaining amount.
There are some scams going around for assume balance sales that involve either buyers or sellers running away from each other.
If you know the person and are in contact with them regularly, it’s an option that you can take. Just make sure that you trust the person you are transacting with. Whether it’s a family member, a relative, or a good friend, make sure that all the documents are in order and that the bank knows that there is something going on with the loan that they have given out to the selling party.
If you are browsing the classified ads for a vehicle, however, tread carefully. While we do not recommend this route if you have to go down it, make sure that you’re very particular about all the little details and bits of information on the documents and with regard to the bank.
Can we recommend that you engage in a sale like this? Honestly, it’s always better to acquire a new car through more direct means, so that means either buying the car outright from the seller with cash, or by going to your dealer and engaging in the loan process yourself. Taking one party out of the picture is better than involving three and risking not only your money but your "purchased" asset as well. A sour deal like this can result in huge financial losses, as well as the repossession of the vehicle by the bank. Remember to conduct your due diligence before entering into any sale.
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