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How to Sell a Car When You Still Have a Loan

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Updated May 13, 2024

If you have a car you want to sell but have an outstanding auto loan, it’s still possible to sell it. However, there are some things you’ll need to consider before moving forward. For instance, the amount left on the loan and how the title will be transferred are among the important considerations.

Factors to consider before selling

Selling a car with an outstanding loan adds additional layers you’ll need to navigate before completing the sale. Here’s what you need to know.

The car’s value

One of the first and most important pieces of information is the car’s value. This is separate from your equity or how much you owe on the loan. Instead, the car’s value estimates how much money you might receive when selling the vehicle. You can find this through third parties like Kelley Blue Book and Edmunds.

Your car’s current value might be very different from the price you paid when you first acquired it. Most vehicles lose value as they age and have more miles on the odometer.

Your equity in the vehicle

How much equity you have will play a crucial role in the sale—especially whether you have positive or negative equity.

  • Positive equity: If you have positive equity, it means the vehicle is worth more than you owe. In this case, you’ll still have money left after paying the loan.
  • Negative equity: If you have negative equity, the vehicle is worth less than the amount you still owe. This means you’ll have to pay the difference when selling your car.

Positive equity is ideal since you will pocket some cash after the sale rather than paying out of pocket. However, it’s possible to sell your vehicle in either scenario.

Loan payoff amount

You will need to know your loan payoff amount—the full sum necessary to close the account and transfer the title to a new owner. This figure includes the remaining principal plus any interest and fees. Contact your lender to find out the full payoff amount.

State and local regulations

State and/or local regulations may exist around the sale of vehicles with outstanding loans. Contact your state DMV to ensure you are in full compliance with all regulations when selling your vehicle.

Insurance

It’s important to maintain insurance coverage on the vehicle until the sale and transfer of ownership are complete. This will protect you against liability and other issues arising from a lack of insurance.

Options for selling a car with a loan

Even if a car has an outstanding loan, there are ways to sell it. Here are some of the best options.

Pay off the loan and sell

This is one of the simplest ways to sell a car with a loan. With this option, you pay off the entire remaining loan balance, obtain the title, and then sell the car. After receiving the title, you could sell it to a local dealer.

While this is an easy way to go, it requires you to have—or be able to get—enough cash to pay the loan. If you have negative equity in the vehicle, you’ll need to be prepared to cover the difference between the car’s value and what you currently owe.

Sell privately and coordinate the loan payoff

Another option is to find a private buyer and work with them and your lender to arrange the sale and pay off the loan. Again, the details will vary depending on your current equity in the vehicle.

However, the general idea is the buyer will pay the sale price to the lender, allowing you and the lender to release the title and transfer it to the buyer. If you owe more than the car is worth, you’ll also need to pay the lender the difference before the sale can be completed.

Trade-in at a dealership

If you are looking to get out of your loan because you want a new car, you can trade it in at a dealership. It’s generally possible to do this even if the car has an outstanding loan.

With this option, you trade in your car when purchasing a new vehicle, and the lender handles the loan payoff. This is perhaps the most convenient option, especially if you are in the market for a new vehicle. In addition, any equity you have in the car can typically be used as a down payment on the new vehicle. If you have negative equity, you can often roll it into a new loan.

However, keep in mind that, if you have negative equity in your current vehicle and roll it into a new loan, you’ll be taking out a larger loan on your new vehicle. In addition, the car’s worth may be valued lower in a trade-in than in a private sale. Consider this option only if you’re comfortable with a loan that will likely result in larger monthly payments and more interest paid.

Sell to a car-buying service

If you’re looking for a convenient way to sell your car with a loan, a car-buying service like Carvana may be an option. The process is generally quick and easy: You get a quote, and the company handles the loan payoff if you accept.

This is one of the easiest ways to sell a car, as you don’t need to find your own buyer. In addition, it’s not a problem if you have negative equity in your vehicle.

The biggest downside is the quote you receive will probably be lower than you could get selling to a private buyer. With these services, you pay for convenience by accepting a lower offer.

How to sell a car with a loan

Selling a car with a loan doesn’t have to be difficult. These tips will help ensure the sale goes through without any hiccups.

Communicate with your lender

First, reach out to your lender and ask about selling a car with an outstanding loan. Some lenders might let you sell the car and pay off the loan with the proceeds directly. On the other hand, some lenders may have a more complicated process. Ask your lender what its requirements are so you have this information in advance.

Handle the loan payoff

The loan payoff is one of the most crucial parts of selling a car with a loan. Depending on how you decide to sell, it might require careful coordination between you, the lender, and the buyer.

If you don’t already know the payoff amount, contact your lender and request it. Then, determine the best payoff method. For example, if you're selling privately, the buyer may be able to send payment directly to the lender for the remaining loan balance. If you have positive equity in the car, you’ll receive the difference between the amount the car is worth and the loan balance.

Alternatively, the buyer can send two payments: one to pay off the loan balance and one for your equity in the vehicle. For instance, if the remaining loan balance is $5,000 and you have $7,000 of equity, the buyer could send $5,000 to the lender and $2,000 to you.

Transfer the title

The title should be transferred to the new owner to reflect their ownership of the vehicle. However, understand that the title can only be transferred after the loan is fully paid off. Coordinate with your lender to determine how the title will be transferred to the buyer once the loan has been paid in full.

What happens to the loan when you sell your car?

When you sell a car with an outstanding loan, the loan doesn’t just disappear. There are often several steps to ensure the sale goes smoothly and the loan is paid off.

As mentioned, the loan will typically need to be paid off during the process, be it by a private buyer, dealer, or car-buying service. Once the loan is paid off, the lender will release the lien on the vehicle. This step is very important because the lien represents the lender’s interest in the vehicle as collateral for the loan. The title can’t be transferred until the lien is released.

Once the lien is released, the title is transferred to the new owner. The exact details of the title transfer may vary by state and lender. If you are making a private sale, you might need to receive the title from the lender and then transfer it to the buyer. With a dealership sale, the dealer may facilitate the process directly with the lender.

Tips for a successful sale

We’ve covered most of the key considerations for selling a car with a loan, but we have a few other tips that will help you ensure a successful sale.

Get out the word

Marketing your car effectively is necessary to get the best price, especially if you plan to sell to a private buyer. Use multiple platforms to advertise your car, such as online marketplaces, social media, and local classified sections. Provide clear, high-quality photos and a detailed description of the vehicle.

Be transparent with buyers

Transparency is important when communicating with potential buyers. Don’t try to hide the fact that the vehicle has an existing loan. If you find the right buyer and price the vehicle fairly, an existing loan shouldn’t be a deal-breaker. Clearly communicate with potential buyers how you will handle the loan payoff and title transfer.

Negotiate

Remember that all sales are negotiable, and you shouldn’t shy away from getting what your car is worth. Before communicating with a potential buyer, have a minimum number in mind. You can then negotiate with them, resolving not to accept any offers that are below your minimum.

You should also consider your car’s market value and the payoff amount. If you have negative equity, for instance, you may not be able to go as low as you could if you had positive equity. After all, having negative equity means you may need to pay out of pocket for the remaining amount. Thus, the lower the offer you accept, the more you may have to pay out of pocket.

TIME Stamp: Coordinate carefully

Selling a car with a loan is possible, but you’ll need to plan and coordinate carefully. First, know if you have positive or negative equity and the loan payoff amount. You have options like paying off the loan yourself, selling privately and facilitating the loan payoff, or trading in the vehicle at a dealership. However, it’s important to communicate clearly and transparently with the buyer and lender to ensure a successful sale and transfer of title.

Frequently asked questions (FAQs)

How do I sell a financed car with negative equity?

The main point is that the loan must be fully paid off before the title can be transferred. If you owe more than the car is worth, you’ll need to pay the difference out of pocket. For instance, if the car is worth $8,000 and you owe $10,000, you may need to pay the lender $2,000 before the title can be transferred to the new owner.

Can you transfer a loan to another person?

You generally cannot transfer a loan directly to another person. If the buyer wants to finance the purchase of the vehicle, they can take out a loan in their name and use the money to pay for the sale. That money will be used to pay off your loan, and the buyer will be left with a loan on which they will make monthly payments.

Can I sell my car with a loan?

Yes, it’s possible to sell your car with a loan. However, for the sale to succeed, the existing loan must be paid off in full before the lender can release the title to the new owner. This is true whether you are selling to a private buyer or a dealer.

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