If you’re still making vehicle payments but want to sell it, you might be asking how to sell a car with a loan. In brief, you must repay the loan so that the lender will release the title and ownership may be transferred to the new owner, whether a private buyer or a dealer accepting the automobile as a trade-in. In any event, negotiating is essential to achieving the best price for your used automobile and coming close to paying off the loan.
How to Sell a Car with a Loan
When selling a car with a loan, whether you’re selling it to a private party, trading it in, or selling it to a dealer outright, there are a few things you should know and actions you should take.
1. Determine the value of your vehicle.
To begin, use a vehicle valuation site such as Kelley Blue Book or Edmunds to discover how much your automobile is worth in today’s market. Other used-car purchasers, such as Carvana and CarMax, will provide you with a valuation for your vehicle. The sites will request basic information regarding your vehicle, such as the year, make, model, general condition, and ZIP code. In order to generate a valuation, some services may also need the licence plate or vehicle identifying number (VIN). When assessing the condition, be truthful. You may have become accustomed to overlooking imperfections in your vehicle, such as a rip in the seat or a little scratch on the fender, but the buyer will notice these issues and may value the vehicle accordingly.
How you want to sell the car will have an impact on how much money you make. For example, if you sell your automobile to a private person rather than a dealer, you’re likely to earn more money for it.
2.WORK OUT YOUR PAYOFF AMOUNT
Inquire with your lender about a payback amount that is likely to differ from your existing loan total. The payback amount comprises the loan total, interest up to a certain date, and applicable fees. Depending on the lender, payment amounts are normally valid for 10 days. You should be able to obtain payback information through your lender’s website or by calling them. Before you pay off your vehicle loan, verify the Truth in Lending Act statement on your loan contract or ask your lender whether there is a prepayment penalty.
3. COMPREHEND YOUR EQUITY
Once you know the value of your automobile and the amount owed, you may calculate your equity in the vehicle. It is the gap between the car’s value and the payout amount. There are two choices: positive equity or negative equity.
- Positive equity indicates that your automobile is worth more than the amount owed. You have $2,000 in positive equity if your automobile is worth $15,000 and your loan debt is $13,000.
- Negative equity indicates that your automobile is worth less than the amount owed. It’s sometimes referred to as driving upside-down or underwater. If you owe $15,000 on the loan but the automobile is only worth $13,000, you’ll need an extra $2,000 to pay off the debt.
4.TALK ABOUT THE SALE WITH YOUR LENDER.
It’s a good idea to check with your lender before offering your automobile for sale. To finalise the sale, you’ll need to grasp your car’s equity status and payback obligations.
Selling with positive equity
It’s a pleasant feeling to sell an automobile with positive equity. It means that the sale price or trade-in value is greater than the loan balance. So you could either walk away with some cash in your pocket or put the positive equity toward a new automobile loan.
When you sell a car with a loan on it, the funds must be used to pay off the debt and transfer the title. If you purchase from a dealer, the dealer should do this for you. If you sell to a private party, you must pay the loan balance yourself.
There are a few things you can do to speed up the process. If you have strong credit, you may, for example, take a personal loan to pay off the auto loan before the sale so you have the title in hand. The money might then be used to pay off the personal debt. When the auto lender is not involved and you have a clear title, selling your automobile is significantly easier. This procedure may also be used to potentially remove a cosigner from a vehicle loan in order to streamline the transaction.
You will need to engage with the Department of Motor Vehicles (or the applicable state titling agency) and the lender to transfer the title to the new owner, depending on the state where the automobile is registered. (If you want to sell privately, make a bill of sale and a release of liabilities.)
Selling with negative equity
Selling an automobile when you’re submerged or upside-down is more difficult. You will not only have to pay the lender the whole amount of the selling profits, but you will also have to pay additional money to offset the negative equity amount. When you have negative equity, you have various alternatives for selling the automobile and paying off the loan in full.
- Pay the difference out of your own wallet. You may be able to pay the difference from savings or another source, depending on the amount of negative equity. If you have to dip into your savings, don’t exhaust your emergency fund or neglect other savings goals.
- Consult with your lender about your choices. Discuss your choices with your vehicle loan provider, or another bank or credit union. Your existing lender may provide refinancing choices that might be beneficial.
- Wait before selling. Continue to make car payments until you have positive equity. Keep the mileage as low as possible and take good care of the vehicle so that the value benefits from its being in good or exceptional condition. Refinancing to a lower interest rate can assist in speeding up the process of building equity. To build equity faster, you might make extra auto payments or a higher payment each month. You can sell your car on your own. You might be able to sell it directly to a buyer for more money than you would sell it via a dealer. However, you and the buyer will be responsible for all administrative tasks such as transferring the title and registration and repaying the loan.
- Transfer your negative equity to your next auto loan. If you must purchase a new car, you might trade in your old one and obtain a new auto loan that includes the negative equity figure. Make sure you completely grasp what’s going on, because this strategy will quickly send you underwater on the new loan. The new car’s monthly payment will be more than it would have been otherwise. If you wish to sell the automobile before the loan is paid off, you may end up carrying negative equity into the next loan as well. If at all possible, avoid this pricey habit.
What to do if the bank demands payment before you sell your car?
The lender will want the entire payback amount before delivering the title to the buyer. If your equity is positive, the lender will pay you a check for the difference. If you have negative equity, you must pay the lender the remainder of the payback amount before the new buyer may take possession of the property.
When the bank requires payment before the car can be sold, you have a few alternatives.
REFINANCE YOUR CURRENT LOAN: To make payments simpler to handle, you might cut the interest rate or prolong the loan duration. Refinancing to a lower APR might help you generate equity more quickly, allowing you to move into a positive equity position or have less negative equity.
Getting a Personal Loan A personal loan can be used to pay off the vehicle lender and get custody of the title. You may then sell the automobile and use the earnings to repay the personal loan. If you do not pay off the entire debt, you will be required to continue making payments on the personal loan until it is paid off. Remember that there will be fees involved with obtaining the personal loan; compare the cost of the fees to the cost of your other financing alternatives.
Make use of your savings. Use your money to pay off the remaining loan debt. Of course, you’ll need enough cash on hand to cover the difference.
How to sell a car with a loan: FAQ
Can you sell a car with a loan?
Yes, you may sell a car with a loan, but the debt must be paid off before the title can be transferred to the new owner.
How Do I Transfer My Car’s Title?
When the loan is paid off, you must deal with the lender and the Department of Motor Vehicles (or your state’s automobile titling office) to transfer the title. A dealer will manage the trade-in procedure, but the seller and buyer will handle the paperwork in a private transaction.
Will selling a car with a loan hurt my credit?
Paying off your auto loan early may reduce your credit score temporarily, but the effect is only temporary.