A few years ago, you used a five-year loan to finance a new vehicle. Although you still have time to pay back the loan, you’ve decided to sell your car because your needs have changed. So, how to sell a car when you still have a loan?
You need to determine what your car is worth, determine your payoff amount, understand your equity, and discuss the sale with your lender.
Read on to find more detailed information.
Can You Sell a Car With An Existing Loan?
Yes, there are a few options for selling a car with an outstanding loan. Remember that you will be responsible for paying the remaining loan balance if the sales price is less than the amount owed on the loan. With help from lending institutions and dealerships, along with the state’s department of motor vehicles (DMV), your options include some of the following:
- Pay off the remaining loan
- Sell your vehicle to a used-car dealer
- Sell the vehicle in a private-party transaction
- Trade the vehicle in at a new-car dealership
Information You’ll Need
Start by getting some basic information about your loan and your car:
Ask your lender for the “payoff amount” and how to handle the transaction. How much it will cost to buy your car outright is indicated by the payoff amount. The lender cannot release ownership and sign the title until the loan is fully repaid. Ask your lender about the requirements if you intend to sell your car privately.
- If the loan is from a local bank, or one with local branches, they’ll probably tell you to find a buyer and bring them to a bank office to sign the paperwork.
- If you have a loan with an online lender, they’ll probably point you in the direction of a bank partner or another financial organization to complete the transaction.
Calculate the value of your car. Using a pricing guide, such as Kelley Blue Book or Edmunds, find the current private party value of your vehicle, what you’re likely to get if you sell the car yourself, or the trade-in valueof your vehicle, which is roughly what a dealer will give you for the car. In most cases, selling your car privately will net you a higher price than trading it in. Consider getting a purchase offer from CarMaxor another dealer offer; it’ll serve as a good benchmark for you to beat and as a backup in case your plans fall through.
Subtract the payoff sum from the car’s value. If the result is positive, you have equity in your car; if it’s negative, you’re upside down on the car loan. When you sell a car with negative equity, you must pay the negative equity and give the lender the full proceeds of the sale.
How to Sell a Car When You Still Have a Loan?
Whether you’re selling the car to a private party, trading it in or selling to a dealer outright, there are some things you need to know and a few steps you should follow when selling a car that has a loan.
Determine What Your Car is Worth
Use a vehicle valuation website, such as Kelley Blue Book or Edmunds, to first ascertain how much your car is currently worth on the market. You will also receive a valuation for your car from other used-car buyers like Carvana and CarMax. Basic details about your car, including its year, make, model, general condition, and ZIP code, will be requested on the websites. Some sites will also ask for the license plate or vehicle identification number (VIN) in order to generate a value. Be honest when you assess the condition. You may have come to overlook your car’s flaws, like a rip in the seat or a small dent in the fender, but the buyer will see those problems and may value the car lower than you expect.
The way you plan to sell the car will influence how much money you make on the sale. For example, selling your car to a private buyer will probably net you a higher price than trading it in at a dealer.
Determine Your Payoff Amount
Request a payoff amount from your lender; it will probably not match the balance of your loan at the time. The payoff sum consists of the principal balance of the loan, accrued interest, any fees, and any other costs. Payoff amounts are typically valid for 10 days, depending on the lender. By calling your lender or visiting their website, you should be able to request the payoff information. Before you pay off your auto loan, be sure to read the Truth in Lending Act disclosure on your loan contract or ask your lender if there is a prepayment penalty.
Understand Your Equity
You can determine your equity in the vehicle once you are aware of the value of the vehicle and the payoff sum. It’s the difference between the value of the car and the payoff amount. Equity is a choice between two possible outcomes.
- Positive equity:This means your car is worth more than the payoff amount. If your car is valued at $15,000 and the loan balance is $13,000, you have $2,000 in positive equity.
- Negative equity:This means your car is worth less than the payoff amount. On a car, it’s also frequently referred to as being underwater or upside down. A further $2,000 will be needed to pay off the loan if you owe $15,000 on it but the car is only worth $13,000.
Discuss the Sale With Your Lender
Before listing your car for sale, it’s smart to consult with your lender. You should be aware of your car’s equity position and the payoff requirements needed to complete the sale.
Selling With Positive Equity
A good situation is when you can sell your car with positive equity. It denotes that the value of the sale or trade-in is higher than the balance of the loan. So either you could leave with some cash in your pocket or you could use the positive equity to refinance your current auto loan.
When you sell a car with a loan on it, you must use the proceeds to settle the debt and transfer the title. If you purchase through a dealer, the dealer ought to handle this procedure on your behalf. You’ll be required to cover the loan balance yourself if you sell directly to a private party.
You can take a few actions to simplify the procedure. If your credit is good, you might be able to use a personal loan to pay off your car loan before the sale so that you can keep the title. Then, you could take the proceeds and pay off the personal loan. Selling your car is much simpler when the auto lender isn’t involved and when you have a clear title. Additionally, by using this procedure, a cosigner for the auto loan may be dropped in order to streamline the transaction.
You may need to work with the Department of Motor Vehicles (or appropriate state titling agency) and the lender to transfer the title to the new owner, depending on the state where the vehicle is registered. (Be sure to draft a bill of sale and release of liability if you intend to conduct a private sale.)
Selling With Negative Equity
When you have a balance that is higher than the value of your vehicle, you must pay the lender the difference.
The sale proceeds will be given to the lender by the buyer. The difference is your responsibility to pay. For instance, if your car is still worth $9,000 but you still owe $10,000, you would pay the $1,000 difference to the lender. The title is then signed by you and a representative of the lender and given to the buyer so they can obtain a new title and registration.
You can get a personal loan to fill the gap if you have good credit. You should pay off your personal loan as soon as you can because they are more expensive than the majority of auto loans.
A title in hand can make a private sale much simpler. If you have excellent credit, you might be able to get an unsecured personal loan to pay off the entire balance on the car. With an unsecured loan, the lender will not be placed on the title. You’ll receive the title, and the car will be exclusively yours. When the car is sold, you can pay back the majority of the loan.
How a Private Sale Impacts Your Loan?
Prior to the pandemic, a private sale would typically bring the highest price for a used car. However, taking this route also means that you and the buyer will be responsible for handling all of the administrative labor on your own. That’s why it’s so important to get the current payoff amount and the documentation the lender requires as well as to ask how the lender wants to handle the transaction.
Keep in mind that the loan officer cannot transfer the title to the buyer until the lender has received the entire payoff amount. The lender will issue you a check for the difference if you own the vehicle with positive equity. Before the agent will sign over the title to your buyer, if you have negative equity, you will need to pay the lender the difference out of pocket.
What to Do If You’re Selling to a Dealer?
A financed vehicle can be traded in at a dealer or sold privately, with or without the remaining balance remaining on the loan.
In many cases, trading in your car at a dealership is simpler than selling it privately. Since finding dealers is simpler and they frequently handle transactions like this, they will handle all the paperwork behind the scenes. Many dealerships can complete the trade within a day.9 After paying off your loan ahead of time, it’s the next best option in terms of convenience.
The tradeoff is that the ease of trading in your financed car does not come for free. Compared to selling your car to a private buyer, you’ll frequently receive less money. If you have negative equity, some dealers will build the cost of the negative equity into the new car loan, so you may end up transferring debt from one automobile to another. The debt eventually can snowball out of control.
What to Do If You’re Selling to a Private Buyer?
Selling to a private buyer who intends to keep and use the vehicle will frequently result in the highest price for your car. Even better, you might be able to sell it for more than its wholesale cost.
If you need the money quickly, you can also sell without a title. With the understanding that the title is not yet available, the buyer may purchase the car from you if they have faith in you. The buyer runs the risk of having issues with vehicle registration, facing suspicions of repossession or stolen vehicle by law enforcement, or both. However, if the purchaser is amenable and you properly document everything, you might be able to hand over the keys, settle the loan with the proceeds of the sale, and sign the title after your lender releases the lien.
Alternatives to Selling Your Car
There are some other choices to think about if you’re unsure whether selling your car is the best decision for you.
Talk With Your Lender
Your first point of contact should be your lender since they are in possession of the title to your car. As the lienholder on the vehicle, they have an interest in seeing that this transaction goes smoothly for both you, their client, and themselves. Your lender can aid you in obtaining your payoff sum, navigating the procedures for selling to a private buyer, or determining the interest rate you are eligible for should you choose to trade in your current vehicle for a new or used one.
Refinance Your Loan
By first speaking with your lender, you may decide that refinancing your loan rather than selling your current car is the best course of action. Depending on your credit, refinancing might get you a lower interest rate—which could save you money on your monthly payments and potentially help you pay off your loan faster.
You could also decide to pay less each month by extending the length of your repayment term. Just remember that a longer term will cost more in interest over the course of the loan.
Tap into Your Savings
Consider using your extra funds to pay off your car loan if you have a sizable savings account and want to avoid taking on additional debt. After paying off your auto loan, make sure you have enough emergency funds saved up to cover any unforeseen costs.
Frequently Asked Questions
Can You Sell a Car Without a Title?
A title serves as proof of ownership, and in most cases, you can’t sell a vehicle without proof of ownership. Replace your title if it was lost, damaged, or stolen. If the vehicle is abandoned, speak with the department of motor vehicles in your state to learn what to do next. An old vehicle’s bill of sale, which can also be used to sell a vehicle, may be present instead of a title in some cases.
How Do You Sell a Car Online?
To sell a car online, you’ll want to choose an online platform that’s reputable and has minimal fees. Clean the vehicle and take numerous interior and exterior photos. Be truthful in your listing if any repairs are required. Using the Kelley Blue Book value and listings for cars with the same make, model, and year as yours, decide how much to ask for your car at the dealership. You may want to use an escrow service to ensure the transaction goes smoothly.
Summary: Working With Buyers
When you sell a car you have a loan on, some buyers may be skeptical and reluctant to go through the extra steps. Many buyers won’t object, though, if you handle it properly. The buyer will feel more confident that everything is being done correctly if a bank or other reputable financial institution is involved.
This loan information doesn’t need to be included in your classified car listing. Before setting up a test drive, however, explain the situation once you believe you have a serious buyer. Inform them that you have spoken with your lender and are aware of the precise actions needed.
The sale won’t take much longer in most cases if these steps are taken. In fact, even when a loan isn’t necessary, finalizing a car deal at a bank is a smart move. It offers a secure location for gathering, and typically, bank staff members are able to respond to inquiries about car transactions.
