How to Sell A Car You Still Have a Loan On

Selling a car is rarely a simple process. If you are selling a car with a loan, this can make it all the more stressful. Can you sell a car on finance? Yes, but it’s usually easier to sell a vehicle that doesn’t have existing finance on it. 

The steps you need to take will depend on a few different factors. Where you hold the loan, the type of auto loan and whether the buyer is a dealer or a private buyer all play a role when looking into how to sell a financed car. 

Information you need to make it happen

Before you start any sales negotiations, it’s important to gather some information first. If you’re wondering how to sell a car with a loan, you will need to determine how much your vehicle is worth. Remember that cars can depreciate each year, so you will need to get an idea of its current value. 

While the actual figure may differ, getting estimates is a good way to determine your current financial position. This price will be a good benchmark to base your next decisions on. 

The next thing you will need to do is find out your total outstanding auto loan amount. It’s important to look beyond the amount that you borrowed as there will be interest rates and additional fees to take into account.

Knowing your car’s value and the amount left on your loan will help you determine if you have positive or negative equity. This is the difference between the potential sale price and your debt. At this stage, you may decide to continue paying off your loan before selling to build up your equity. Selling with negative equity usually means you will lose money in the sale. 

Steps to selling a car you owe money on

There are three main steps in selling a car with a loan. These steps may differ depending on whether you are selling to a private buyer or a dealer.

Step 1 – Look at your payoff amount

The first step in selling a car with a loan is to find out how much you owe. The best way to do this is to get an official payoff letter from your lender, which states the amount you owe. It will also have instructions on paying the remaining loan and how to submit payment. 

A payoff letter provides you with all the information you need—so there are no surprises. The payoff amount also includes any interest you owe so it may not be the same as the current balance you owe on the car.

Step 2 – Pay the loan off

It is possible to sell the car with existing finance, but it usually makes buyers hesitant to take it. Instead, you will most likely need to close the loan at the time of the sale or before, if possible.

It’s often better to postpone the sale until you have paid the loan. However, you could also use a short-term, low-interest loan to pay off the difference. Ideally, you should only do this if you have good credit, but some lenders do offer bad credit loans too. Hopefully, the sale of the car should cover most of the amount you borrow in this case so you can repay it quickly. 

Step 3 – Get all the paperwork in order

The next step after you have found a buyer is to complete the sale. This means transferring your title over to the buyer so that they can register the car in their name. This is usually a simple case of filling in the paperwork and providing the buyer with a bill of sale. 

On the bill of sale, you should include your contact details, sale price and date, vehicle odometer reading at the time of sale and both signatures. Each state may have different requirements, so always be sure to check those first. 

Let’s look at three different selling scenarios

While the steps above apply to most transactions, most people could find themselves in unique circumstances. 

Private sale with positive equity

If your vehicle is worth more than what you owe on your loan, you have positive equity. This puts you in a good position to sell your car because you can use part of the cash to pay off the loan and pocket the rest. This is a more straightforward process and leaves you with some leftover money from selling the car. 

This move usually works as an agreement between the seller, lender and buyer. The buyer will pay what is owed to the lender and the remaining balance will go to the seller. 

Private sale with negative equity

Things can get more complicated if your car is worth less than the loan amount you owe. Negative equity means that when you sell your vehicle, you won’t be able to pay the full loan and instead will have to pay the lender the amount you get from selling the car—as well as the difference between the sale price and what you owe. One way to cover the difference is a personal loan. 

Selling with negative equity can end up being quite expensive. Ideally, you should wait until you have positive equity on your car, or you have paid the loan fully before selling.

Trading in a car you haven’t fully paid

Another option you have is to go through a dealer. You can sell a financed car even if you have not paid the loan by trading it at a dealership. This is often a more straightforward process than selling to a private buyer. Dealers are easier to find, and they are used to dealing with all sorts of outstanding finance agreements. 

Although you may end up getting less for your car than if you were to sell to a private buyer, this is often a good move if you are planning to purchase another vehicle. 

Too long, didn’t read?

If you still have outstanding debt but wish to sell a car you still have a loan, don’t feel intimidated. Once you do your proper research and check things off your list, the process can be seamless. Remembering the following takeaways will be a key in an effective transaction: 

  • Document your car’s value, the payoff amount and whether you have positive or negative equity.
  • If you have positive equity, then you could simply pocket the difference between the sale price and what you owe
  • If you have negative equity in your car, the sale could end up being quite expensive

Lastly, it’s important to weigh up all your options and where possible, reduce your loan amount before selling. 

We welcome your feedback on this article. Contact us at inquiries@thesimpledollar.com with comments or questions. 

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Kara Copple
Kara Copple
Contributing writer

Kara Copple is a writer who specializes in business, finance and marketing industries.

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  • Andrea Perez
    Andrea Perez
    Personal Finance Editor

    Andrea Perez is an editor at The Simple Dollar specializing in personal finance. Prior to that she specialized in digital marketing content for online learning websites. She holds a master’s degree in journalism and media studies from the University of South Florida.

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