How to Sell a Car With a Loan: Prepare and Choose Your Route
You want to sell your car, but you’re still making car payments. Can you sell it? And how do you navigate the process?
June 24, 2022
Like most life decisions, it’s wise to explore all your options when figuring out how to sell a car with a loan. Yes, it’s possible to sell a car you owe money on, but the process may be more complex than if you didn’t have an auto loan to pay off. Plus, the price you get from selling a financed car may be lower than if it wasn’t financed.
But if you need to sell a financed car, there are some steps you can take to make the car sale process easier. We’ll explain how to prepare to sell your car and which routes you can take to sell a car with a loan.
How to sell a car with a loan
Since you still have an outstanding car loan, the lender holds the car title. Before you sell your car, there’s some prep work to do.
Here are four steps to take when preparing to sell your car.
Step 1: Find out how much you still owe
The first step would be to talk to your lender and find out how much you still owe on the car loan. The lender is the lienholder, so the car loan should be paid off before you transfer ownership to the new owner.
Note that the payoff amount may be more than the loan balance on your monthly statement because of prepayment penalty fees, interest or other fees. Find out what paperwork you need to prepare.
Step 2: Figure out the value of your car
You can look up the market value of your vehicle online. Kelley Blue Book or Edmunds offer this service. You may need to enter specific information about your vehicle, such as the:
License plate number
You’ll then get the estimated trade-in and private party value.
Step 3: Figure out the equity of your car
This is an important step when selling a car with a loan. Equity is the difference between what you owe on your car loan and what your car is worth.
If the value of your car is greater than your loan balance, your car has positive equity. You could potentially have some money left over after the sale.
If the value of your car is less than your loan balance, then your car has negative equity. You’ll have to figure out how to come up with the cash to cover what you owe. If you have a good credit score, consider taking out a personal loan. If you wish to purchase a new vehicle, you could add the difference to your new loan.
Step 4: Decide how you want to sell your car
There are different ways to sell a car with an outstanding loan. You can:
Sell your car in a private transaction
Sell your car to a used car dealer
Trade in your car for a new one at a new car dealership
Whichever way you decide to sell your car, note that some financial institutions may want the payoff amount before you sell the car.
If you’re able to pay off your outstanding loan and get a clear title to the car before you sell it, the process could be easier. This would be beneficial especially if you decide to do a private sale.
Selling your car in a private sale
Selling a financed car in a private sale can be tricky. It involves additional work from the buyer and seller. Buyers may have to see the car several times before deciding to purchase the car. They’ll also be putting a lot of faith in you to make sure the transaction goes through.
You may have to take some extra steps to make the buyer feel more comfortable. If your car loan is financed by a bank or credit union, you could show the potential buyer a letter from the financial institution that states the sale price of the car, delivery method and transaction details. Another option is to utilize an escrow service to protect both parties.
As mentioned above, it’s important to talk to your lender and find out the payoff amount and all the necessary documentation that’ll be required for the car sale. Since the lender is the lienholder, they’ll want the car loan to be paid off before they do a title transfer to the private buyer.
The sale might work a little differently depending on whether you have positive or negative equity in the car:
If you have positive equity: The buyer could write a check to the lender for the sale price, and the lender may write you a check for the difference. The buyer could also write two checks: one to the lender for the loan balance and another to you for the remainder.
If you have negative equity: You may have to write a check to the lender for the difference between the sale price and the amount you owe on the car. The lender could also accept checks from both you and the buyer — with the total amount between the two checks equaling the loan payoff amount.
If your car loan is through a bank or credit union, you and the buyer may have to go to a local bank branch to conduct the transaction. If the car loan is from an online lender, the lender may require you to conduct the transaction at a specific location.
You’ll also have to contact your state’s Department of Motor Vehicles (DMV) and find out if there are any fees or forms you might need to complete the transaction. Once the car sale takes place, the title can be transferred to the new buyer who will then get a new registration and title from the DMV.
Here are the pros and cons of this method:
Pros: You may get the optimal price for your car versus selling to a dealership
Cons: You’ll be doing most of the administrative work and the transaction may be more complex
Selling your car to a used car dealer
Selling your financed car to a used car dealership could be simpler than a private sale.
Here are some of the pros and cons:
Pros: The dealership will take care of most of the paperwork, contact your financial institution to pay off the loan and transfer the title of the vehicle. In addition, you don’t have to go through the hassle of finding a potential buyer.
Cons: You may get a lower offer than a private sale or a trade-in.
One point to note: It may be worth your while to find out how the dealership handles positive and negative equity. If you have negative equity in the car, be prepared to pay the difference.
Trade in your vehicle at a new car dealership
The process of trading in a financed vehicle is similar to selling your car to a used car dealer. You’ll have to determine the payoff amount, get an estimate on the value of your car and determine your equity.
If you have positive equity, the balance can go toward the purchase of the new car. If you have negative equity, you can pay off the loan before buying the new car or roll the balance over to your next car loan.
Pros: It’s less of a hassle and you may get some new car incentives from the dealership.
Cons: You could end up getting less cash for your car versus selling to a private party. And if you choose to rollover your loan to a new car, you could end up with a bigger loan with a higher interest rate or higher monthly payments.
Selling a car with a loan: Which route will you take?
Now that you know how to sell a car with a loan, you’ll be better prepared to take the additional steps. Once you determine the value of your car and your car’s equity, you can decide whether it would be better to do a private sale, sell the car to a dealership or trade in the vehicle.
If you’re selling the car because the monthly payments are a financial burden or if you plan on trading in your car for a new one, it may make sense to pay off your other debts. Consider using the Tally† app to manage your credit cards. Tally helps qualifying users pay off higher-interest credit card debt by offering a lower-interest line of credit.
†To get the benefits of a Tally line of credit, you must qualify for and accept a Tally line of credit. Based on your credit history, the APR (which is the same as your interest rate) will be between 7.90% - 29.99% per year. The APR will vary with the market based on the Prime Rate. Annual fees range from $0 - $300.