Will the real car owner please stand up? Risk of buying a used car from a dealer and paying in full

SINGAPORE – Sometimes, it seems that being financially responsible is not rewarded.

Opt to buy a car without taking out a loan through the dealer, and the price is jacked up to compensate the dealer for the substantial commission it stands to lose. Yet, as a recent court case proved, there is an even bigger risk when you pay in full for a used car.

In April, a buyer who had fully paid for a used Toyota Vellfire lost his case against the dealer’s creditor, which had seized the car. Even though cash changed hands and the car was driven home, the buyer never became its legal owner. All in, he lost nearly a quarter of a million dollars, including legal fees.

In this case, the buyer could not prove that the dealer he dealt with was selling on behalf of the owner, which was the finance company.

This exposes the harsh reality of the trade: Motor dealers routinely turn to short-term loans, known as floor-stock financing, from finance firms to stock their showrooms. This is a crucial source of funding for dealers to operate.

Legally, the dealer does not actually own the vehicles sitting in its showroom. It can market a car for all it is worth, but it cannot transfer the car’s ownership until the debt is repaid.

In the recent case, the dealership became insolvent before it redeemed the loan, so the transfer was never made.

Had the buyer taken out a loan, his bank would have automatically cross-checked the vehicle’s status with the Hire Purchase, Finance and Leasing Association of Singapore, ensuring that the title was clean before disbursing the funds. As a private individual, there is no direct way to perform such checks.

While this may be sufficient for many used-car transactions as hire-purchase financing is dominant, those who are buying cars without a loan are not protected.

Furthermore, a recent tweak to the regulatory framework has made it even harder for private buyers to protect themselves by identifying the vehicle’s actual owner.

With effect from June 30, 2025, the Land Transport Authority has revised the system to enhance access security. Previously, a buyer could glean ownership clues from the last four characters of the owner’s identification number on the preferential additional registration fee (PARF) and certificate of entitlement (COE) Rebate Enquiry document, which primarily shows the paper value of the car at a set date.

Now, a one-time access code sent to the current owner is used instead.

While this is a positive move for data privacy, as it keeps out unauthorised queries, it means that a bona fide car buyer loses an important strand of independent information before parting with a significant sum of money.

To be fair, the PARF-COE Rebate Enquiry document was not meant to be an ownership registry for buyers. But without it, how else can a buyer know that the person holding the car keys is actually authorised to sell the vehicle?

By law, legal ownership must be transferred within seven days when a vehicle changes hands, and that is a long time for a buyer to wait. A dishonest seller would have long disappeared by then.

For buyers who intend to buy a car without financing, the logical approach, then, would be to insist that the dealer makes the transfer on the spot.

If the used car has outstanding financing, the dealer will have to make arrangements in advance, priming the financier to effect the transfer the moment the cash clears. If the dealer is unwilling to do so, the best thing to do is to walk away.

Conditions for the deal, like when to hand over the vehicle and all fees related to the deal, should be clearly documented in the agreement. This reduces ambiguity.

If things go wrong in the buying process, consumers can turn to the Motor Industry Dispute Resolution Centre, an independent institution that handles disputes between consumers and dealers under a joint initiative between the Consumers Association of Singapore and Singapore Vehicle Traders Association.

Buying from these accredited dealers offers a safety net, but it is a reactive measure.

More can be done to protect consumers before things go awry. One possibility is to introduce a public verification service, similar to the Singapore Land Authority’s property search. This will allow car buyers to independently verify a vehicle’s actual legal owner and any outstanding financing.

In the case of the buyer of the used Toyota, he would have been able to deal directly with the finance company and have legal ownership transferred.

Another property market practice worth emulating is the use of a neutral escrow account to hold the buyer’s funds, releasing them to the seller only after the legal transfer is complete.

Such measures are not free to use, of course, but until such structural safeguards are introduced, cash buyers will continue to shoulder an unfair and dangerous amount of risk.