How To Sell A Car With A Loan (Everything You Need To Know)

If you’re planning to sell a car with a loan, you may have questions… and we have answers!

Whether you’re looking to downsize, upgrade to a newer model, or simply want to part ways with your vehicle, it’s essential to understand the process, especially when you still have an existing loan on the car.

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Below, we’ll walk you through the steps on how to sell a car with an outstanding debt, covering everything from determining your car’s value to working with your lender. 

KEY TAKEAWAYS:

• Selling a car with an existing loan is possible, but it requires careful planning and communication with your lender.
• Steps to selling a car with a loan include finding your car’s market value, obtaining the loan payoff amount, collaborating with your lender, and understanding your equity.
• Your equity position—whether positive or negative—will significantly impact your sales process and your financial choices. 

Can You Sell A Vehicle With An Existing Loan?

One of the most common questions when considering selling a car with an existing loan is whether it’s possible. 

The answer is yes; you can sell a vehicle that still has an outstanding auto loan. It’s common practice and you can do it at any point during your loan. 

Three parties will be part of the deal – you (the car owner), the buyer, and the bank that loaned you the money.

However, there are specific steps and considerations involved in the process.

Step 1: Calculate Your Car’s Current Market Value

Before diving into the selling process, it’s crucial to determine your car’s current market value. Understanding your car’s market value can help you set a reasonable asking price.

Several tools and resources are available online, such as J.D. Power, Kelley Blue Book, Edmunds.com, Nada.com, and Carfax.

These sources provide estimates based on your vehicle’s:

• Make and model
• Year of manufacture
• Level of wear and tear
• Mileage
• Any additional features

The value of your car can vary depending on whether you’re trading it in to a dealer or selling it to a private party. 

To maximize the appraisal value of your car, consider:

• Giving the car’s exterior a thorough wash and wax.
• Vacuuming the interior, removing any clutter or debris.
• Addressing minor problems, like non-functional lights, low tire pressure, or minor dents.
• Ensuring all fluid levels are topped up, including washer fluid and coolant.
• Assembling vital documents, such as service records and registration information.

Step 2: Know The Loan Payoff Amount

You cannot sell the car until you clear the outstanding loan amount.

The next step is to obtain the loan payoff amount – the remaining balance on your loan, which includes the principal balance, any interest accrued, financing fees, and any prepayment penalties you owe. This is the amount you must pay to clear the loan and obtain a clear title for the car.

Your lender, the institution that provided the auto loan, can provide this information. You can contact them directly to request a payoff statement, and they’re required to provide an offer that is valid for ten days.  

Step 3: Request Instructions From Your Lender

Communication with your lender is essential. Inform them of your intent to sell the car and request specific instructions on how to proceed. 

Your lender will guide you on the necessary steps, including providing the necessary documents and paying off the loan. 

Keep the lines of communication open with your lender throughout the selling process. 

Remember, being honest always pays… so don’t hide any facts about the car from your lender.

Step 4: Determine Your Equity Status

Understanding your equity position is vital for making informed financial decisions. Equity is the difference between your car loan’s balance and its current value.

Your equity in the car can either be positive or negative. 

Let’s explore both scenarios…

Selling with Positive Equity

Positive equity means the car’s market value is higher than the loan payoff amount. 

In this case, selling the car can help you generate funds that can be used for purchasing a new vehicle or addressing other financial needs.

Selling with Negative Equity

Negative equity occurs when the car’s market value is lower than the loan payoff amount. 

This is commonly called being underwater or upside down on your car loan and can be a frustrating experience for a person looking to sell their car.

If you find yourself in this situation, you may need to cover the difference between the market value and the loan balance to complete the sale. 

If you have negative equity on your car, you might want to consider making additional payments and selling it when your equity matches or exceeds the payoff quote.

Step 5: Find A Buyer

Once you’ve determined your car’s market value, acquired the loan payoff amount, and assessed your equity, it’s time to find a buyer. 

You can explore various options for selling your car, such as private sales, dealership trade-ins, or online platforms. Conduct thorough research to determine which method aligns best with your goals and equity position.

Selling to a private buyer who intends to own and drive the car typically yields the highest price for your vehicle.

Pro Tip: Private sales can be risky in terms of potential scams, so it’s crucial to take steps like using an escrow service or using a bank as an intermediary during the exchange to protect yourself.

Step 6: Transfer The Title To The Buyer

After settling on a price with the buyer, it’s essential to draft a bill of sale and sign the title to facilitate the transfer of ownership and the subsequent vehicle registration.

Working closely with your lender is crucial to ensure a smooth transaction. 

What To Do When The Bank Demands The Payoff Before You Sell Your Vehicle

When your bank wants the payoff before you sell the car, you can refinance to a lower APR or get a personal loan. 

Your lender will guide you through this process, ensuring that all necessary paperwork is completed.

Trading In A Car With An Existing Loan

Some dealerships offer the option to trade in your car with an existing loan. 

In this case, the dealer pays off your outstanding loan, and the remaining equity, if any, can be applied toward the purchase of a new car.

How To Sell A Car With A Loan: FAQ

Throughout the selling process, you may have additional questions and concerns. 

Here are a few frequently asked questions (FAQs) regarding selling a car with an existing loan:

Can I Sell A Car That Is Not Fully Paid Off?

Yes, you can sell a car that is not fully paid off. Selling a car with an existing auto loan is possible, but it requires careful planning and communication with your lender. 

You will need to determine the car’s market value and the loan payoff amount. Once you have a clear understanding of your equity position, you can proceed with the sale. 

What If I Still Owe More on My Car Than It’s Worth?

If you owe more on your car than it’s worth, you have negative equity in the vehicle. 

In this situation, you’ll need to cover the difference between the car’s market value and the loan payoff amount to complete the sale. This means you may need to pay a certain amount out of pocket to clear the loan and obtain a clear title for the car. 

Should I Pay Off My Car Loan Before Selling It?

Whether you should pay off your car loan before selling it depends on your financial situation and equity position. 

If you have positive equity in the car, it’s not necessary to pay off the loan before selling it. You can use the proceeds from the sale to clear the loan. However, if you have negative equity, paying off the loan may be required to complete the sale. 

How Do I Handle the Paperwork and Title Transfer?

Handling the paperwork and title transfer when selling a car with a loan is a critical part of the process. The specific steps may vary by state, but generally, you should follow these steps:

• Contact your lender
• Obtain the loan payoff amount
• Prepare a bill of sale
• Pay off the loan
• Complete the title transfer

It’s essential to follow your state’s specific requirements for title transfer and to consult with your lender during the process to ensure a smooth process.

Some Final Thoughts On How To Sell A Car With A Loan

Selling a car with an existing loan can be a straightforward process when you understand the necessary steps and effectively communicate with your lender. 

By evaluating your car’s market value, working closely with your lender, and making informed decisions based on your equity position, you can successfully navigate the selling process.

If you are currently overburdened with debt as you look to sell your vehicle, it’s important to know that you have options that could help you reduce your debts.

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