Selling a car when you still owe money on a loan is not difficult. It just adds a few extra steps. If you financed a car a few years ago but your needs or wants change before you finish paying it off, you can still sell your car; you just need to know how to prepare for the sale. Take a look at how to sell a car with a loan.
First Steps To Take When Selling a Car With a Loan
Whether you’re trading your car in at the dealership, selling it privately, or selling it to a dealer, there are a few steps you need to follow when selling a car with a loan.
1. Find Out Your Car’s Value
The first thing you need to do is find out the current value of your vehicle. You can do this by going to a valuation site such as Kelley Blue Book or Edmunds. Just enter the year, make, and model of the car, and provide your zip code. You’ll also need to provide information about the condition of the vehicle.
2. Determine the Loan Payoff Amount
Next, call your lender to find out what the payoff amount is on your loan. Keep in mind the amount might be slightly higher than the amount on your monthly balance due to interest or fees. Since you owe the lender money for the vehicle, they hold the title. You’ll need to pay off the balance before they will transfer the title and ownership to you.
Your lender can also walk you through the steps you need to take to pay off the loan and sell the car. The next steps depend on whether you want to sell it privately or trade it in at the dealership.
3. Understand Your Equity
Understanding whether you have positive or negative equity in your vehicle is an important step. Equity is the difference between what you owe for the vehicle and what it’s worth. If you owe more than the current value of the car, you have negative equity. This is also commonly referred to as being upside down in your loan. If the value of the car is higher than what you owe, you have positive equity.
4. Pay Off the Loan
The best scenario for paying off the loan is to do it before selling your car. If selling privately, this means you’ll have a clear title that you can just sign over to the buyer.
How To Sell a Car With a Loan and Positive Equity
As the name implies, positive equity is a good place to start when selling a car, even if you still owe on the loan. It means that the trade-in value or sale price will be more than what you owe. You can use the money you get from the buyer to pay off the rest of the loan and then use the extra towards your next vehicle, or just keep it for future use.
If you sell with positive equity, once you use the proceeds from the sale to pay off the loan, you can transfer the title. When buying and selling through a dealership, they will take care of all the paperwork for you.
How To Sell a Car With a Loan and Negative Equity
It’s a little more complicated to sell your car when you have negative equity. In addition to paying the lender what you can from the proceeds of the sale, you also have to pay the rest of what you owe. You have a few options for paying the loan in full when you have negative equity. These include:
- Pay the difference out of pocket. You might be able to pay the difference out of pocket from your savings or another source of income, depending on how much negative equity you have.
- Wait to sell. Continue to make payments on your current vehicle until you are no longer upside down on the loan. Make sure to take good care of the car and keep the miles to a minimum if possible.
- Discuss payoff options with the lender. Talk to your lender about your options, or go to another bank to see if they have options for you. You might be able to refinance.
- Roll the negative equity into your next loan. If you are in a situation where you have to get a new vehicle, you can roll the negative equity into your next loan. This means that your loan payment will include the amount for the new car plus what you owe on the last one. This should be a last resort because you might have a hard time getting out of negative equity if you have to roll over your next loan too.
- Sell privately. In some cases selling privately instead of trading your car in at the dealership allows you to get more money for your car. Just remember, you’ll need to handle all the paperwork, from paying the loan off to transferring the title.
Selling to a Dealer
Selling or trading your car in to a dealer is the easier option if you can’t pay off the loan before selling. The dealer will take care of the paperwork, contact the lender for the payoff, and take care of the title transfer.
Selling to a Private Buyer
Selling privately will often get you a better price, but the trade-off is that you have to take care of all the legwork. Once you find a buyer, conduct the sale at the lender who holds the title. Since you are there, you can take the money from the sale, apply it to the loan, and sign over the title when the lender releases it. You can supply the buyer with a bill of sale that commits you to sign the title over to them when you receive it. You may also allow the buyer to take the vehicle itself so that it is in their physical possession. They still will not be able to title or register it until you supply the title, however. Keep in mind that if you owe more than what you’re selling the car for, you’ll also have to bring the rest of the loan balance with you to pay it off before the lender will release the title.
These steps will walk you through how to sell a car with a loan. There are just a few extra steps you need to take, but it’s not much more than selling without a loan.
At FIXD, our mission is to make car ownership as simple, easy, and affordable as possible. Our research team utilizes the latest automotive data and insights to create tools and resources that help drivers get peace of mind and save money over the life of their car.