Am I liable for an unpaid loan on a car I recently purchased, if the loan was taken out by a previous owner?

Question Details: I purchased a car over a year ago and have just found out that the car was used as security on a previous owner's loan that hasn't been paid. The finance company now says I have to pay the outstanding debt or they will take my car. What can I do?

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Answers by Lawyers

Community Law Wellington & Hutt Valley

If you purchased the car privately and a finance company had a registered security interest in the car at the time you bought the car, then they will have the right to claim the car from you.

However, there are some exceptions to this rule:

Exception 1: If the car was worth less than $2,000 at the time the previous owner used it as a security. If you think it was less than that, ask the finance company to prove that the car was worth more than $2,000 at the time the loan was taken out or the credit contract was signed by the previous owner.

Exception 2: If at any time between when the security interest was created and when you bought the car, the car passed through a registered motor vehicle trader.

Exception 3: If there was something wrong with the information which the finance company included on the Personal Property Securities Register (PPSR) – for example if the registration or Vehicle Information Number is incorrect.

We recommend collating all the information you have regarding the purchase of your car and visiting you local Community Law Centre to discuss what options are available to you. To find your nearest Community Law Centre, please visit this website:

For more information regarding money oweing on motor vehicles, please visit this website:

Answered 30 Oct 2013. The IMPORTANT NOTICE below is part of this answer.

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