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What to do about selling your car When You Still Have a Loan

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How to Sell Your Car If You’re Still in the process of obtaining a loan

You have to pay off your loan to transfer ownership. The lender is liable for any difference between balance and sale price.

By Philip Reed Auto Loans Specialist | Edmunds.com Philip is an auto expert who has written 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 negotiate on a used car. His goal is to help people save money in their car budgets.

22nd October, 2021

Edited by Samantha Allen Lead Assigning Editor Samantha Allen leads the insurance team at NerdWallet. Prior to that, she was 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 finances and managing wealth for more than 10 years.

The majority or all of the items featured on this page are from our partners, who pay us. This impacts the types of products we write about and the location and manner in which the product is featured on the page. But, it doesn’t influence our evaluations. Our opinions are our own. Here’s a list of and .

It’s easy to sell a car that has the loan on it, but it adds extra steps and might take a little longer.

When you have a loan, the lender is in essence, part owner of the vehicle. The lender’s name may be on the title or the lender may actually hold the title. This is to ensure you won’t be able to sell the vehicle as well as transfer ownership to a buyer without receiving its cash — or the balance in the loan.

Whether you want to or trade it in to a dealer, you’ll need to be aware of the amount you have to pay on your loan or credit card, whether it’s higher than or less than the amount you can obtain by selling your vehicle, and how your lender expects you to manage the transaction.

You’ll need the following information

Begin by obtaining the basics of your loan and your car:

1. Request your lender to provide details on the “payoff amount” and the best way to manage the transaction. The amount you pay off is the amount that it would cost to purchase your vehicle for the full amount. The loan has to be paid in full for the lender to take ownership of the vehicle and sign to the car title. If you’re planning on selling your car privately, consult with your lender regarding the steps to take.

If the loan is from a local bank, or one with local branches, they’ll likely tell you to find a buyer and bring the bank’s office to sign the loan paperwork.

If you’re in possession of an loan through an online lender, they’ll probably send you to a bank partner or another financial institution to finish the transaction.

2. Find out what your car is worth. Using a pricing guide such as Kelley Blue Book or Edmunds Find the value of your car, the amount you’re likely to receive when you sell your car by yourself or in the case of your vehicle, which is roughly what a dealer will give you for the car. It’s likely that you’ll get more money for your vehicle when you sell it privately than when you trade it in. Take a look at a dealer’s offer. It’ll serve as a good standard to beat and as an alternative in the event that your plans fail.

3. Subtract the payoff amount from the value of the vehicle. If the result is positive, you have equity in your car; If it’s negative, you’re . Selling a car that has negative equity, you have to pay the lender all the proceeds from the sale , and also pay for the equity you don’t have.

With this information at mind, let’s examine every scenario.

Private sale with positive equity

The buyer will pay the total amount to the lender, and the lender will then pay the remaining balance to you. Or, the buyer will pay the remainder of your loan balance to the lender and make a separate payment to you. For example, if you still owe $5,000 and the buyer is going to pay $15,000 for the car, you’ll pocket $10,000 for the purchase.

Then, you and the lender both sign the title and give it to the prospective buyer. The buyer then takes the title that has been signed (and any other documents required) to the state’s department of motor vehicles , and receives an updated registration and title.

A title that is in good condition will make selling a car privately much easier. If you have excellent credit, you might be able to take an unsecured personal loan to cover the entire amount due on the vehicle. With an unsecured loan the lender is not put upon the vehicle’s title. The title will come to you and the vehicle will be yours alone. But the rates for personal loans, even if your credit score is excellent, will be more than most auto loans; pay it off in the moment you get the buyer’s check in the bank.

Private sale with negative equity

If you owe more than your car is worth, you need to pay the creditor the difference between the sale price and what you have to pay.

The buyer pays the amount of the sale to the lender. You pay the difference. For example, if you still owe $10,000 and the buyer is willing to pay $9,000 for your vehicle, you would give the lender the $1,000 difference. You along with a representative from the lender are authorized to sign the title and then give it to the buyer so that they are able to obtain a new the title as well as registration.

If you’re a credit-worthy person, you can take an individual loan to pay for the gap. These personal loans are more costly than the majority of auto loans but you’ll need to pay off the loan in the shortest time possible.

A title in hand can make a private sale much easier. If you’ve got excellent credit, you may be able to get an unsecured personal loan to pay the total amount that you owe on the car. If you take out an unsecure loan, the lender won’t be placed upon the vehicle’s title. The title will be transferred to you and the vehicle will be yours alone. You are able to pay back the principal of the loan after the vehicle is sold.

Car you owe money on

In this case the dealer will handle all the paperwork. If you sell an automobile that is worth more than you owe, the dealer offers you credit for the difference, which you can use towards the purchase of your new car.

>> MORE INFO:

If you’re in the red on the loan, the dealer may offer to include the equity balance that’s negative into the loan on your new car. Be cautious with this choice because it could mean you’re taking out a larger loan to purchase the car you’ll be buying. You might want to think about at a lower interest rate rather than getting a new car.

If you’ll need to borrow a when you trade in your car, making these wise choices will make a huge difference in dollars:

and know what interest rate you can qualify for

before going to the dealer. This will prevent the dealer from increasing the interest rate of your new loan.

Know the trade-in value of your car, and also the worth of the car you’re considering buying. If the dealer doesn’t give you prices that are comparable to these, try another dealer or offer the vehicle to a private buyer.

Other variations

In certain cases, an online lender will require the full amount to be paid off of loan before it will release the title. If you have the cash ready to pay off the loan and then sell your car, you may do so. If you want to, ask the buyer to give the cash to the lender and have the title mailed directly to them. If you have a good relationship with the buyer (like a neighbor or friend) this will work. However, it is more difficult to get other buyers to believe in this process and spend the time and effort it takes.

Working with buyers

When you are selling a car that you’ve a loan on certain buyers might be skeptical and reluctant to take the extra steps. But, if you manage the process correctly, a lot of buyers will not be hesitant. The involvement of a bank or a known financial institution can ensure that the buyer is confident that it’s being done correctly.

It is not necessary to include this loan information on your car’s classified listing. But once you feel that you’ve found a buyer who is serious be sure to explain the situation prior scheduling a test drive. Let them know that you’ve had a conversation with your lender, and you know exactly what steps are required.

Most of the time, these steps won’t add time to the selling process. Actually, closing the deal at a bank recommended even when there is no loan isn’t involved. It’s a safe gathering place and, usually bank personnel can help with questions regarding car transactions.

About the author: Philip Reed is an expert in the field of automotive and is the author of a syndicated column

NerdWallet which has been featured through USA Today, Yahoo Finance and many others. He is the author of 10 books.

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