Most people get an auto loan instead of buying their car in cash. But what happens if you need to sell before you pay off the loan? How do you sell a car with a loan?
The funds from the car sale go to the lender first. You receive anything left after paying off your loan. If you sell your car for less than the amount of the loan, you will still owe your lender. If you sell to a dealership, they’ll handle the paperwork and process for you, but you have to take care of it yourself if you sell to a private seller.
Take a closer look at how to sell a car with a loan, including in a variety of situations.
If you are still paying off your auto loan and want to sell your car, there is good news. This is possible and it happens all the time. It will simply add a few steps to the process of selling your car.
The result will be the same no matter how you sell your car. If you sell the car for more than the remaining loan balance, your lender gets paid in full and you get any money left. If you sell the car for less than the remaining balance, you will still owe your lender money.
No matter whether you are selling the car to a dealership or privately, you need to get some basic information before you can begin the process.
The most important thing to know is the payoff amount, which is the amount that you would have to pay the lender to own your car outright. Depending on your loan terms and length, there may be payoff fees in addition to your balance and interest.
The other important thing to know is how much your car is worth. You can use tools like Edmunds and Kelley Blue Book to get an accurate estimate.
Comparing the car’s value to the payoff amount will let you know whether you will have positive equity (a profit) or negative equity (owe the lender) after the sale. That will influence the process somewhat.
Your easiest option when selling a car with an auto loan will be to trade it into a dealership, as the dealership will handle most aspects for you. If you have positive equity, you can put that money toward the down payment on your new auto.
Some dealerships will also let you trade in a car with negative equity. In this case, they would add the amount you still owe your old lender to your new auto loan. This saves you the need to pay off the loan at the time of the sale, but it increases the amount of your new car loan. That is a very important caveat, as it means you will owe more than your new car is worth for longer.
If you plan on trading in your old car at a dealership instead of selling it to someone, then remember that you will likely be applying for a new auto loan. So, you should check your credit score and report. Make sure the information in your report is accurate. Consider getting pre-approved for a loan as well.
The idea behind selling a car privately with a loan is similar to when you sell it to a dealership. But the lender will have to be directly involved in the process.
Each lender can have a slightly different process. As such, it is best to ask them what you have to do ahead of time.
If your lender has a local location, they will likely ask you and the buyer to go to the office with the paperwork. You will handle everything there. If your lender doesn’t have a local location, they will likely have a local partner where you can complete the process.
When you still have an auto loan on the car you are selling, your buyer will pay your lender, not you. This can happen in one of two main ways:
After the buyer pays for the car, both you and the lender sign the title. You then give it to the buyer. At this point, the buyer can bring the title and other paperwork to your state’s DMV to get their new title and registration.
If you have negative equity in your car, then you need to be prepared to pay your lender. Your buyer will pay the lender the full amount that they purchase the car for. And you will be responsible for paying the difference and have to do so at the same time.
Once the money is paid, then you and the lender sign the title and give it to the buyer. As with situations with positive equity, the buyer will then go to the DMV to get a new title and update the registration.
If you don’t have cash on hand, this can be very challenging. You may have to get a personal loan to cover the difference. If you do that, pay attention to the interest rates. Your personal loan rate will likely be higher than your auto loan rate was.
Another option if you still have a car loan is to get a personal loan to pay off the balance. This would likely have to be an unsecured loan, which means that the interest rate will probably be more than that of your auto loan. Because of that, you would want to minimize the length of time for which you have the loan.
Even with the higher rate of an unsecured loan, some people prefer this method due to the convenience when selling to a private party. That is because the lender will not be on the title when you go to sell it. As such, you don’t have to deal with them or have them sign the title. But you will likely need a very good credit score for this to be an option. Even then, you may not want to because of the loan application process and interest rates.
In some cases, you may find yourself in a slightly different scenario and need to transfer the car loan to someone else. Maybe the person you transfer the loan to will be another buyer. Or maybe it will be someone who cares about you and is in a better financial situation.
To transfer a car loan to someone else, the new person has to apply for a loan, but the process is fairly straightforward.
Before you decide to transfer your car loan, make sure that this is an option. Some contracts will have extremely large fees if you refinance or transfer the loan. If that is the case, you may want to think about alternatives.
As you check the contract, you also want to figure out the loan payoff amount. At the same time, confirm the loan requirements, such as income level and credit score. The person you transfer the loan to must meet those requirements.
Once you know it is an option, it is time for the new loan holder to apply for the loan. They will need to fill out a loan application that has the same conditions and terms as your current loan.
Some lenders may not let you transfer the loan completely to someone else. Instead, they may require them to become a cosigner on the loan.
Once you have the loan approval, you have to modify the title of the car. This is crucial as the title outlines who owns the car. So, it would change from you and your lender to the new owner and the lender. This process involves visiting the DMV with a bill of sale and valid IDs for both you and the person you transferred the loan to.
You have a few options for selling a financed car when you still owe money on it. The important thing to know is that the lender needs to be paid in full at the time of the sale. If you owe more on the car than you sell it for, you will have to pay the difference. Most people owe less than they sell the car for. In this case, the lender receives the amount owed and you get anything left. You can then put that toward a new car if you sell to a dealership or do anything else with the money when you make a private sale.