How to Pasalo: Selling Your Car with Existing Loan in the Philippines
Selling a used car is generally straightforward, but it becomes more complex when there’s still an outstanding loan on the vehicle. To avoid delays or complications, it’s important to understand the sale process thoroughly, including the different options available depending on your situation. One common method is pasalo, where the buyer assumes the remaining loan balance, but it’s just one of several possible arrangements.
In this guide, we’ll walk you through the steps you need to take to sell a car with an outstanding loan, the potential challenges, and how you can ensure the transaction goes smoothly. Whether you’re selling to a buyer directly or through a dealership, understanding the ins and outs of loan transfer is essential.
Can You Sell a Car with an Outstanding Loan in the Philippines?
Yes, selling a car with an existing loan is possible. However, there are several key steps involved that both the seller and buyer need to be aware of. When a car still has an outstanding loan, the lender retains ownership of the title. This means neither the seller nor the buyer can assume full ownership or complete a legal transfer until the loan is fully settled.
One common way to handle this is through a process called pasalo, which allows the buyer to take over the remaining loan balance. This arrangement lets the sellers transfer their vehicle without paying off the loan first, while giving buyers a more accessible financing option.
How a Pasalo Arrangement Allows the Sale of Cars with Outstanding Loans
Here are the three parties that are involved in a pasalo arrangement and what each of them does:
- The Seller: The current owner of the car with an outstanding loan.
- The Buyer: Typically agrees to take over the remaining monthly payments on the loan, not the full original amount. However, some sellers may request additional cash upfront, and terms can vary.
- Lender: Reviews and approves the buyer’s application to assume the loan, then releases the title once the loan is fully paid.
It’s a practical option that helps sellers move on from a financial commitment and provides buyers access to a car through more affordable monthly terms.
The process begins when the seller contacts their lender to seek permission to transfer the loan to the buyer. This option is only available for vehicles that were purchased through financing; it doesn’t apply to cars bought in cash. The bank will typically evaluate the buyer's financial situation, including their credit history, to ensure they are capable of assuming the loan.
If the bank approves the transfer, the buyer will then continue making payments on the remaining balance of the loan. For instance, if the car was originally financed for ₱600,000 and the seller has already paid ₱250,000, the buyer would assume the remaining ₱350,000 and continue the monthly payments under the same or revised terms.
Is Pasalo Legal and Safe?
Yes, pasalo is a legal process in the country, but it must be conducted with the lender’s consent. Without this approval, the car sale cannot proceed under the pasalo system. As a buyer or seller, it's essential to communicate with the bank to ensure the transfer is legitimate. Failing to do so can lead to serious legal issues, including the risk of repossession if the sale is not approved.
A Step-by-Step Guide: Selling a Car with an Existing Loan in the Philippines
Selling a car that’s still under a loan may seem complicated, but with the right steps, it can be done smoothly. This guide focuses on you as the seller, the current owner of the vehicle with an outstanding car loan. You’ll be working with two other key parties:
- The buyer – the person interested in acquiring your car, who may take over the loan or pay it off.
- The lender – the bank or financing institution that holds the loan and the car’s Certificate of Registration (CR) until the loan is fully paid.
Let’s walk through the process from your point of view as the seller.
Step 1: Contact Your Lender
Start by informing your lender of your intent to sell the car. Request a loan balance statement to know the exact amount remaining on the loan. Ask the lender about the process for loan assumption (pasalo) and any requirements the buyer must fulfill.
Note: Some lenders may require the buyer to pay off the remaining loan in full (or a loan buyout) instead of allowing a loan assumption. Always confirm your lender’s specific process.
Step 2: Determine the Outstanding Loan Balance
Knowing your remaining loan balance will help you, the seller, price your car more accurately. For example, if you, as the seller, owe ₱1,000,000 and want to sell the car for ₱1,100,000, you’ll need to understand how the payments will be split—₱1,000,000 goes to the lender, and ₱100,000 can go to you as the seller.
Note: The buyer typically does not pay the ₱1,000,000 upfront as a lump sum unless it’s a loan buyout. With loan assumption, the buyer continues the monthly amortization after the lender approves the transfer. The ₱100,000 difference may be paid by the buyer directly to you, either upfront or through a separate agreement.
Step 3: Find a Buyer Willing to Assume the Loan
Look for a buyer who agrees to take over the loan and understands the terms. Be transparent about the outstanding balance, monthly amortization, interest rate, and payment schedule. The buyer must go through the lender’s credit approval process before assuming the loan.
Step 4: Negotiate the Sale Terms
Discuss and finalize the car’s selling price. If the agreed price is equal to the remaining loan, the buyer will simply take over the payments with no additional cost. If the price is higher than the remaining balance, the excess (e.g., ₱100,000) is typically paid directly to you, the seller. This can be done before or after loan transfer approval, depending on what both parties agree upon.
Step 5: Submit Requirements and Secure Bank Approval
Once terms are agreed upon, both parties (the seller and the buyer) must submit the required documents to the lender. These usually include valid IDs, proof of income for the buyer, and a signed agreement from both parties. The lender will evaluate the buyer’s creditworthiness before approving the loan transfer or buyout.
Step 6: Finalize the Transaction
Once the buyer’s application is approved, they take over responsibility for the outstanding loan. Unless the buyer opts for a lump-sum buyout (when they pay the entire loan in a single payment), they continue with the same monthly payment schedule as the original loan or based on what the buyer and the seller have agreed upon. At this point:
- The seller receives any additional agreed-upon payment from the buyer (if not already settled before bank approval).
- The buyer assumes the remaining loan payments, typically following the existing payment terms and schedule.
- The title remains with the bank until the loan is fully paid off.
Step 7: Complete the Ownership Transfer
Once the buyer finishes paying off the loan in the future, the lender will release the title. The buyer can then fully transfer ownership into their name with the Deed of Sale, loan clearance, and other supporting documents.
Note: The official transfer of ownership at the LTO (Land Transportation Office) can only be processed once the bank releases the car’s original Certificate of Registration (CR) after full loan payment.
Challenges of Selling a Car with an Existing Loan
While the process is manageable, there are a few challenges to keep in mind:
- Sale Price vs. Loan Balance: If your selling price is less than what you owe, you’ll need to pay the difference to the lender before the loan can be cleared or transferred.
- Lender Approval Delays: The buyer must meet the bank’s credit standards. If not, the transfer may be delayed or denied.
- Extra Charges: Some lenders may impose transfer or processing fees, which should be clarified upfront.
- Legal Risk: If the sale pushes through without lender approval or proper documentation, both parties may face legal complications.
Warning: Be cautious with “open deed of sale” transactions, especially for pasalo arrangements. While commonly used by some dealers, leaving the buyer’s details blank can lead to legal and financial risks, such as disputes over ownership, unpaid penalties, or even loan defaults tied to your name. For your protection, it’s best to complete the deed properly and follow official transfer procedures.
Alternatives to Selling with an Outstanding Loan
If the process feels too complex or risky, here are two common alternatives:
1. Pay Off the Loan First
Settling the loan balance in full simplifies the sale. Once the title is released, you can sell the car as a fully owned vehicle without needing lender approval. However, this may not always be the best or most feasible option for everyone, especially if immediate funds are limited or you want to explore alternatives like pasalo.
2. Trade-In the Car
Many dealerships accept trade-ins even if your car has an existing loan. The dealer pays off your remaining balance and applies your car’s appraised value toward your next vehicle purchase.
Selling a Car with a Loan
Selling a car with an outstanding loan can be a straightforward process when you follow the proper steps. By understanding the pasalo system, negotiating carefully with the buyer, and working closely with your lender, you can successfully sell your car and settle your loan. However, it’s important to remain aware of the challenges that may arise, especially when it comes to loan balances and bank approval processes.
Remember, whether you’re selling a car with an existing loan to upgrade your vehicle or simply cash out, always make sure to do your due diligence, maintain clear communication with the buyer, and comply with all necessary paperwork to ensure a smooth transaction.
