Selling a Car with a Loan: A How-to Guide

Selling a car is difficult under any circumstances, but if you try selling a car with a loan on it, the process can feel downright terrifying. When it comes to selling an automobile, having no payments or liens on it makes the process slightly simpler, but you still have alternatives if you have a loan on the vehicle. 

If you financed the purchase of your vehicle, clearing the title of the vehicle by paying off the loan at the time of sale (or before) is the simplest way to sell the vehicle.

Your next steps will be determined by a number of variables, such as the kind of buyer (dealer vs. private individual) and the location of your loan. The procedures are described in detail here.

Is It Possible to Sell a Car with an Existing Loan?

There are a few options available if you want to sell your car while still making payments on the loan. Don’t forget that if the sale price is less than the loan total, you’ll still be responsible for paying off the difference. The state’s DMV, as well as financial institutions and car lots, can assist you to explore various financing choices, such as:

• Take care of the remaining balance on the loan.
• Sell your car to a second-hand dealer.
• Put the car up for sale between private parties.
• Do a car trade-in at a new-car lot.

How to Sell a Car with a Loan

There are a few things you should know and actions you should take before selling a financed vehicle to a private party, trading it in, or selling it outright to a dealer.

1. Determine Your Loan’s Payoff Amount

The first step is to contact your creditor to get advice and confirm the actual amount you owe. An official payoff is not complete without a payout letter from the creditor. Payment terms, including due date and accepted payment methods (such as a bank account number for wire transfers), are all included in this legal document. 

However, the amount you owe on the loan will fluctuate daily due to interest costs and the fact that you can’t be sure of when you’ll sell the car. If you have all the information, you won’t be blindsided.

Any interest accrued up to the scheduled payoff date, as well as any other outstanding costs, will be added to your payoff total. This means it can be different from the amount you really owe for the automobile right now.

You could also ask your creditor for advice on selling the car with a loan on it. The transaction may go more smoothly if you and the buyer are able to meet in person at your creditor’s office. 

Prepayment penalties and how long it takes to get the title after the lien is paid off are also important things to find out. The specifics are going to vary from state to state.

To put it bluntly, you won’t be able to sell the car while the loan is still outstanding. It’s more likely that the loan will be paid off at or near the time of sale. When you’ve paid off the loan on your car, the creditor will remove the lien so you can sell it.

2. Know Your Car’s Value

Use a site like Kelley Blue Book or Edmunds to find out how much your car is now worth in today’s market. You can also get an estimate from other used-car buyers like Carvana and CarMax. Aside from your ZIP code, the sites will ask for the year, make, model, and general condition of your vehicle.

There are also services that will ask for a VIN or license plate number to provide a valuation. Assess the situation with complete honesty. The buyer will see the problems with your automobile that you’ve grown accustomed to overlooking, such as a rip in the seat or a little damage in the fender, and may offer you less money for it as a result.

The amount of money you make when selling the car depends on the strategy you employ. Selling your automobile privately, as opposed to trading it in through a dealership, can result in a higher price.

3. Know Your Car’s Equity

Understanding your equity in a car requires knowing both the car’s worth and the payback amount. The negative equity is the shortfall between the payout amount and the car’s market value. You can either have positive equity or a negative equity situation.

• Positive equity: This means the value of your car is more than the amount owed on your loan. If you owe $13,000 on a car that is worth $15,000, you will have $2,000 in equity.

• Negative equity: It’s unfortunate that the depreciation in value of your vehicle has rendered the payout amount inadequate. You may say that you’re underwater or upside-down in your car. Because the loan balance is $15,000 and the car is only worth $13,000, you will need to come up with an extra $2,000.

4. Prepare and Advertise Your Car for Sale 

The last thing you should do is prepare and advertise your car for sale. In most cases, you, the buyer, and the loan officer will all be involved in the process to sell your car. The loan officer will sign over the title to the buyer whether you have positive or negative equity. 

It’s important to ask your creditor ahead of time what you and the seller will need to bring to the closing table in terms of paperwork and funds to ensure a seamless transaction.

After the title is signed, the buyer can take it and any other necessary documentation to the department of motor vehicles in their state to obtain a new title and registration.

Is It Possible to Sell a Car Without a Title?

To sell a car, you need to be able to show proof of ownership, and the title does just that. Your title should be replaced if it has been lost, destroyed, or stolen. If you find an abandoned vehicle, it’s best to get in touch with your state’s DMV to find out what to do. If the vehicle is really old, the owner may just have a bill of sale instead of a title.

Does Selling Your Car with a Loan Can Hurt Your Credit?

It’s important to know how to correctly arrange the selling of a car with a loan on it to avoid damaging your credit score. In this case, paying off your auto loan early may temporarily damage your credit score.

Before selling a car with a loan on it, it’s in your best interest to talk to your creditor and weigh your choices thoroughly. By doing so, you can make sure the deal goes well and prevent any credit problems from arising.

Bottom Line

A car with a loan on it can still be sold, but it will require more work and time. Lenders take on the role of co-owners of the car when financing is involved. Lenders can either have their name appear on the vehicle title or control the title outright. This is done so that if you were to sell the car and give the title to a new owner, the creditor would still receive paid in full for the car loan.

The amount still owed on your loan, whether or not it is more than what you would get by selling your car, and how your creditor expects you to conduct the transaction are all things to consider before selling your car to a private party or trading it in to a dealer.