Selling Your Car When You Have Still a Loan
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What to do about selling your car If You’re Still in the process of obtaining a loan
You must repay the loan to be able to transfer ownership. You are responsible to the lender for the difference between your balance and the sale price.
by Philip Reed Auto Loans Specialist | Edmunds.com Philip is an auto expert who writes a syndicated column for
NerdWallet. He has been on national television and radio and once wore an invisible camera for ABC News to show how to haggle on a used car. His goal is to help people save money in their automotive budgets.
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Written by Samantha Allen Lead Assigning Editor Samantha Allen leads the insurance team at NerdWallet. She was previously the digital managing editor for the magazines Financial Planning and On Wall Street. She was a graduate of Northwestern University’s accredited financial planner course and has been covering personal finance and wealth management for more than 10 years.
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It’s easy to sell a vehicle with a loan on it, but it adds extra steps and could take longer.
If you’re in possession of an loan the lender is in essence, the owner of the vehicle. The lender’s name could appear on the title, or the lender might actually hold the title. This is to ensure you don’t have the right to sell the car and then transfer it to the next owner, without getting its money or the remainder or the balance of the loan.
Whether you want to or trade it in to an dealer, you’ll need be aware of the amount you have to pay on your loan, whether it’s more or less than what you’ll be able to get by selling your car, and how your lender expects you to handle the transaction.
Information you’ll need
Start by getting some basic information about your loan and your car:
1. Ask your lender for details on the «payoff sum» and the best way to manage the transaction. The amount of payoff is the amount that it will cost you to own your vehicle for the full amount. The loan has to be paid in full for the lender to release ownership and sign off for the registration. If you’re planning on selling your car privately, inquire with the lender about the steps to take.
If the loan originates from a local bank, or one that has branch locations in the area, it will probably tell you to find the buyer and bring the paperwork to a bank to sign the loan paperwork.
If you have a loan with an online lender, they’ll probably refer you to a bank partner or another financial institution to complete the transaction.
2. Determine what your car is worth. Using a pricing guide such as Kelley Blue Book or Edmunds, find the current of your car, the amount you’re likely getting when you sell your vehicle yourself or in the case of your car approximate value that dealers will offer you for the vehicle. Generally, you’ll get more money for your vehicle at a private sale than when you trade it in. Take a look at a dealer offer. It will provide a standard to beat, and also as a backup in case your plans fail.
3. Subtract the payment amount from the market value of the car. If the result is positive, you’ve got equity in your car; If it’s negative, then you’re . Selling a vehicle with negative equity is a requirement to repay the lender the money from the car sale , and also pay for the negative equity.
With this knowledge in hand, let’s look at every scenario.
Private sale with positive equity
The buyer will pay the total amount to the lender and the lender will then transfer the remaining balance to you. Or, the buyer will pay the remainder of your loan balance to the lender and then make an additional repayment to you. For example If you’re still owed $5,000, and the buyer is going to make a payment of $15,000 to purchase your vehicle, you’ll get $10,000 for the purchase.
Then you and the lender both sign the title and hand it to the prospective buyer. The buyer then takes the signed title (and any other documents required) to the department of state of motor vehicle and is issued a a new registration and title.
A title in hand will make selling a car privately much more straightforward. If you have good credit, you may be eligible for an unsecured personal loan to cover the entire amount due on the vehicle. If you take out an unsecure loan the lender won’t be named in the car title. The title will go to you, and the car will be yours alone. But rates on unsecured personal loans even if your credit score is great, will be higher than the majority of auto loans and you must pay it back when you’ve got the check from the buyer banked.
Private sales with equity that is negative
If you owe more than your vehicle will be worth, you need to give the creditor the difference between the purchase price and the amount you owe.
The buyer pays the purchase price to the lender. The lender will pay the difference. For instance, if you still owe $10,000, and your buyer will pay the sum of $9,000 to purchase your car and you pay the lender the $1,000 difference. You and a representative of the lender are authorized to sign the title and then give that title to the person buying it, so they are able to obtain a new the title as well as registration.
If you’re creditworthy and credit, you may be able to get a personal loan to help cover the gap. The personal loans are more costly than typical car loans and you’ll have to pay it off as quickly as possible.
A title in hand can make a private sale much easier. If you have excellent credit, you may be able to take an unsecure personal loan to pay the total amount due on the vehicle. If you take out an unsecure loan the lender will not be named upon the vehicle’s title. The title will come to you and the vehicle is yours for the taking. You are able to pay back the principal of the loan at the time the car is sold.
Making a trade in a vehicle you owe money
In this instance the dealer is able to manage all paperwork. When you trade in a car that’s worth more than the amount you owe the dealer offers you a credit for the difference to use toward the purchase of your new car.
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If you’re in the red on the loan then the dealer may offer to include the negative equity amount into the loan for your new vehicle. Tread carefully with this option as it implies you’re actually getting a bigger loan for the next car. You may want to consider at a lower interest rate rather than getting a new vehicle.
If you’ll be taking out a loan when you trade in your car, making these wise choices will make a huge difference in cash:
and know what interest rate you can qualify for
before you go to the dealer. This will stop the dealer from increasing the interest rate of the new loan.
Be aware of the value of the trade-in of your present car and the actual market value of the car you’re purchasing. If the dealer isn’t able to offer you a price that is close to these consider a different dealer, or offer the vehicle to a private buyer.
Other variations
In certain situations, an online lender will require the full amount in the loan before it releases the title. If you have the cash available to pay off the loan before selling your car, you may do so. Otherwise ask the buyer to pay the lender, and get the title sent directly to them. If you have a strong connection to the seller (like an acquaintance or a neighbor) this will work. However, it is more difficult to get other buyers to believe in this method and invest the extra time required.
Working with buyers
If you decide to sell a vehicle that you’ve an loan on the other hand, buyers could be hesitant and uneasy to take the extra steps. However, if you handle it correctly, many buyers will not be hesitant. Involving a bank or known financial institution can give the buyer confidence that it’s being done correctly.
There is no need to include this loan information on your car’s classified listing. However, if you believe you have a serious buyer discuss the situation prior to scheduling a test drive. Let them know that you’ve had a conversation with your lender and know the exact steps required.
In the majority of cases this don’t prolong the process of selling. Indeed, closing off a car deal at a bank is recommended even when there is no loan isn’t in the picture. It’s a safe gathering space and, in most cases bank employees are able to answer questions about vehicle transactions.
About the author: Philip Reed is an automotive expert who writes a syndicated column for
NerdWallet is a brand that has been used in USA Today, Yahoo Finance and many others. The author has written 10 books.
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