Selling a car you’re still financing can feel like a complicated process, but it’s not uncommon. Many people find themselves in situations where they need or want to sell their car before fully paying off the loan. Whether you’re looking to upgrade, need to downsize, or just can’t afford the payments anymore, selling a financed car is entirely possible. However, it requires careful planning, understanding of the legal aspects, and coordination with your lender.
In this comprehensive guide, we will walk you through the steps of selling a car you are still financing, the legalities involved, and some tips to make the process smoother.
Why Sell a Financed Car?
People decide to sell a financed car for a variety of reasons. Here are some common scenarios:
- Financial Hardship: Life circumstances can change unexpectedly. Maybe you’re going through a job loss, divorce, or an unexpected medical expense, and you can no longer afford the car payments.
- Want a Different Car: You may want to upgrade to a newer model, switch to a more fuel-efficient vehicle, or opt for something that better fits your lifestyle.
- Depreciation and Upside-Down Loans: Sometimes, people realize their car has depreciated faster than expected and they owe more on the loan than the car is worth. In this case, they may want to sell to avoid being stuck with negative equity.
- Lease Alternatives: Some people finance their cars because they think it’s more cost-effective than leasing, but they later realize a lease might suit them better and want to switch.
No matter the reason, selling a financed car comes with its own set of rules and procedures. Let’s dive into the specifics.
Understanding Your Car Loan and Equity
Before you even think about selling your financed car, it’s important to understand how much equity you have in it. The relationship between your loan balance and the car’s current market value determines whether you have positive or negative equity.
- Positive Equity: If the car is worth more than the remaining balance on your loan, you have positive equity. This means you can sell the car, pay off the remaining loan, and pocket the difference. Positive equity situations are easier to handle because the value of the car exceeds the loan, so you won’t need to worry about paying more than you receive from the sale.
- Negative Equity (Upside Down): If the car is worth less than what you owe on it, you have negative equity, or you are “upside down” on the loan. Selling a car with negative equity is more complex because the sale price will not be enough to cover your loan balance. In this case, you’ll need to come up with the difference between the sale price and your loan balance.
To determine your equity, follow these steps:
- Find the Loan Balance: Contact your lender or check your loan account online to find out how much you still owe on the car. This is your payoff amount.
- Determine the Car’s Value: Use tools like Kelley Blue Book, Edmunds, or NADA Guides to estimate your car’s current market value based on its make, model, year, mileage, and condition.
- Calculate the Difference: Subtract the loan payoff amount from the car’s market value. If the result is positive, you have equity in the car. If it’s negative, you’ll need to pay the difference between the loan amount and the sale price.
Can You Sell a Car You Are Still Financing?
Yes, you can sell a car that you are still financing, but the process involves some extra steps compared to selling a car that’s fully paid off. The key point to remember is that the lender holds the title to the car until the loan is paid off in full. You won’t be able to transfer the title to a new owner until you’ve paid off the loan, which means the buyer can’t officially own the car until this happens.
However, there are several ways to sell a financed car depending on your specific situation:
1. Pay Off the Loan First
The most straightforward way to sell a financed car is to pay off the loan before you sell it. Once the loan is paid off, you’ll own the car outright, and the lender will release the title to you. From there, you can sell the car just like you would any other personal property.
To pay off the loan, you’ll need to contact your lender to get the payoff amount, which is the total amount required to close out the loan. You can then either:
- Use savings or another source of cash to pay off the loan.
- Refinance the loan with a personal loan or another type of financing (though this typically only makes sense in special situations).
Once you’ve paid off the loan, your lender will send you the title. After you receive the title, you can transfer ownership to the buyer.
2. Sell the Car with a Loan Payoff at Closing
If you can’t or don’t want to pay off the loan before selling the car, another option is to sell the car and pay off the loan simultaneously. This is a common method, and many private buyers and dealerships are familiar with it.
Here’s how it works:
- Step 1: Find a Buyer: You can either sell the car privately or trade it in at a dealership. Both methods have their pros and cons, which we’ll discuss later in this article.
- Step 2: Inform the Buyer: Be upfront with the buyer that the car is still financed and you don’t yet have the title. Buyers will want to know the process for paying off the loan and receiving the title.
- Step 3: Pay Off the Loan at Closing: Once you have a buyer, you’ll coordinate the sale with your lender. The buyer will pay the sale price to you (or directly to your lender in some cases). You’ll use that money to pay off the loan, and the lender will then release the title. This can take a few days to a couple of weeks, depending on the lender.
- Step 4: Transfer the Title: Once the loan is paid off and the lender sends you the title, you can complete the title transfer and give it to the buyer.
This method works well when you have positive equity or a small amount of negative equity that you can cover out of pocket.
3. Roll Over Negative Equity into a New Loan
If you have negative equity, one option is to roll the remaining loan balance into a new car loan. This is commonly done when trading in a financed car at a dealership.
Here’s how it works:
- Step 1: Find a Dealership: Many dealerships will accept a trade-in even if you still owe money on the car. Be sure to disclose the outstanding loan amount upfront.
- Step 2: Negotiate the Trade-In Value: The dealership will appraise your car and offer a trade-in value. If the trade-in value is less than the remaining loan balance, you’ll have negative equity. For example, if your car is worth $15,000 but you owe $18,000, you’ll be $3,000 upside down.
- Step 3: Roll Over the Difference: The dealership will pay off the remaining loan balance and roll the negative equity into your new loan. This means the $3,000 difference will be added to the price of your new car loan. While this can be a convenient solution, it’s important to understand that rolling over negative equity will increase the amount you owe on your new loan, which could result in higher monthly payments.
4. Selling to a Private Party
Selling a car privately can help you get more money for your car compared to trading it in at a dealership. However, selling privately when you still owe money on the car requires coordination with the buyer and your lender.
- Step 1: Find a Buyer: Once you have an interested buyer, be transparent about the financing situation. Let them know you still owe money on the car and that the lender holds the title.
- Step 2: Pay Off the Loan: Work with your lender and the buyer to handle the loan payoff. The buyer will pay you the agreed-upon price, and you’ll use that money to pay off the loan. If you have positive equity, you’ll keep the difference. If you have negative equity, you’ll need to pay the difference out of pocket.
- Step 3: Transfer the Title: Once the loan is paid off, your lender will release the title, and you can transfer it to the buyer. It’s important to be clear with the buyer that this process can take some time, depending on how quickly your lender processes the title release.
Tips for Selling a Financed Car
Selling a financed car involves some extra steps and careful coordination, but it’s a manageable process if you follow these tips:
- Know Your Payoff Amount: Contact your lender to get an accurate payoff amount before you start the selling process. This will help you determine if you have positive or negative equity and how much money you need to complete the sale.
- Be Transparent with Buyers: Always inform potential buyers that you’re still financing the car and that the lender holds the title. Buyers appreciate transparency, and being upfront can help build trust.
- Work with Your Lender: Your lender will play a key role in the sale process. Make sure you understand the lender’s requirements for paying off the loan and transferring the title. Some lenders may require you to physically visit their office, while others may allow the process to be handled electronically or via mail.
- Consider Trading In: If you’re looking for a simpler process, trading in your financed car at a dealership can save time and hassle, especially if you’re buying a
