Selling Out Of Trust

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DEFINITION of 'Selling Out Of Trust'

A term commonly used in the automobile industry to refer to the selling of a car that has been paid for with a loan and then not using the sale proceeds to pay back the lender. This practice may be engaged in by car dealerships or individuals facing financial difficulty. Normally, if an individual can't make his car payments, the bank takes back the car. When the owner sells the car out of trust and doesn't repay the loan, the bank can't seize the loan collateral (the car).

INVESTOPEDIA EXPLAINS 'Selling Out Of Trust'

Dealers who obtain loans to acquire their vehicles can likewise engage in selling out of trust. Normally, a dealer pays monthly interest in the loans used to purchase vehicles until the vehicles are sold, at which point the loan is supposed to be repaid. While this term is commonly used in reference to car sales, it can also be used in other situations where a debtor sells an item without passing the sale proceeds to the lender. Selling out of trust is illegal.

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