It’s possible to sell a car with a loan, but you have to pay off the loan first. This way, the lender can release the title, so the car can be sold to the new owner without lien – whether it’s a private buyer or a dealer accepting a trade in.
One way to do this is for the buyer to assume the balance of the car loan.
Rad on to learn the steps on how to sell your car even if you still have an unpaid balance on your loan.
What Happens When You Finance an Automobile, and You Want to Sell It?
The loan must be settled in full before the lender can consider releasing the title to the buyer. You can pay the loan balance with the sales proceeds. The difference between the loan balance and the proceeds of the sale is your equity.
For instance, if you still have a loan balance of $8,000, and you’re selling the car for $7,000, you’ll need to shell out $1,000 more to fully settle the loan. On the other hand, if you have a remaining balance of $8,000, and you’re selling for $9,000, $8,000 goes to the lender, and you keep the $1,000.
Will Selling A Financed Car Hurt Your Credit Score?
Not necessarily. If the value of your car is almost equal to your loan balance, and the sales proceeds is enough to cover the loan in full, then the sale would not be harmful to your credit.
What Is The Best Way To Sell A Financed Car?
Use the proceeds of the car sale to settle the loan, then transfer the title to the new owner. This should be done by the dealer if you’re transacting with one. However, when selling to a direct buyer, you need to settle the loan yourself.
What Documents are Required When Selling a Car?
When selling your car, you need to prepare the required documentation. First is the lien-free title that will be transferred to the buyer. You can only transfer a title under your own name, which will only be possible if there is no loan balance. The Bill of Sale will serve as proof that the new owner assumes responsibility for the car. Get an Emissions Test document as well, if this is required by the state.
While the Owner’s Manual is not necessary, it is best that you give it to the new owner to help them maintain the car. The Warranty Documents can help the buyer, especially if the car is still under warranty. Provide the car’s service records as well, as these will show the buyer how well you maintained your car.
5 Steps: How to Sell Your Car When You Still Have a Loan
We’ve summarized the steps on selling a car with a loan that you can follow below.
Step 1 - Determine your car’s current value.
There are several factors that can help determine your car’s value. These include the make, model, mileage, features, and condition, among others. There are online sites that can help you determine your car’s value. You just need to input the car’s details.
Step 2 - Determine how much you need to fully settle your loan.
Contact the lender and ask for an updated statement that includes the remaining principal, interest, and other fees until you are able to settle the loan, say after 10 or 15 days. The lead time is important to give you enough room to find a buyer and negotiate a good price.
Step 3 - Determine your equity.
Your equity is the amount left after paying the loan using the sales proceeds. You have a positive equity if the sales proceeds exceeds the loan balance. In this case, you settle the loan and pocket the balance.
On the other hand, if you have a negative equity, meaning the loan balance is greater than the sales proceeds, you give the entire proceeds to the lender. You then shoulder the difference.
Step 4 - Sell the car to a dealer or a private party.
You have the option to sell either to a dealer (which is an easier process), or to a private party (which can potentially generate higher sales proceeds).
When you sell to a dealer, the entire process, including paying off the loan, will be handled by the dealer. Regardless if you have negative or positive equity after the sale, the dealer can help you with the processing.
If you opt to sell to a third party, you will take care of the entire process yourself. However, it will give you the opportunity to earn a lot more compared to selling to a dealer. You can negotiate for a better price with a direct buyer.
Step 5 - Pay the taxes due.
Before selling your car, determine first if there are tax implications you need to consider - for the loan, sale of the vehicle, or title transfer. You can ask your lender or local DMV for clarification.
Follow these steps when selling your car with a loan to make the entire process run smoothly.
What to Consider Before You Sell Your Car with a Loan
Before selling a car with a loan, consider your equity after the sale. You can proceed if there will be leftover money for you. However, if you will have a negative equity, and you will still have to shell out money from your own pocket to settle the loan, it may be wiser to wait for a better offer.
Final Verdict
Selling a car with an existing loan is possible, although it makes things a bit more complex. However, the tips we provided in this article should help make the entire process easier for you.
Don’t hesitate to leave a comment or share your own tips below.