How To Sell a Car With a Loan

Q: Can you trade in a car financed by someone else?

To sell or trade in a car , you’ll need the car title. But if the car was financed by someone else, they’ll need to pay off the loan balance so the lender can transfer the title. Once you get the title, you can trade in the vehicle.

Written by Amanda Push

Written by John Csiszar

Edited by Sarah Fisher

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Key takeaways

You can sell a car with a loan, but you’ll have to pay it off in full.
If you owe more than the car is worth, selling a car with a loan may not make sense.
Pay attention to the terms of your loan, as well as any state requirements in terms of paperwork, to ensure you complete your transaction without any hiccups.

If you’re still paying off a car loan, you don’t fully own your vehicle. In most states, the bank that issued your loan retains the title until you make payment in full. But you still have the power to sell your vehicle if you so choose, as long as you fulfill the terms of your car loan agreement.

4 steps on how to sell a car with a loan

If you haven’t fully paid off your car loan, there are a few extra steps you’ll need to take before you sell the car. Whether you’re going to a private buyer or a commercial one, here’s a step-by-step guide on how to sell a financed car without paying it off.

Looking to trade in your car? Learn more about how to trade in a car.

1. Determine what your car is worth

To sell your vehicle at a reasonable price, you’ll need to determine your car’s value. You can do this by visiting industry guides like Kelley Blue Book (KBB) or Edmunds. These resources will factor in the make, model, mileage and age of your car.

KBB and Edmunds can give you an estimate for a private party car sale, as well as the trade-in value of your car. Generally, you’ll make more money if you sell your car privately.

You can also get estimates from used car websites, including used car buyers like Carvana and CarMax, to make comparisons. You’ll need to provide information like the make and model of your car, its overall condition and your ZIP code.

2. Get the loan payoff amount

Next, you’ll need to contact your lender to determine the loan payoff amount. This is how much it’ll cost for you to officially own your car rather than the lender. This amount may be different from how much is left on your loan.

And while it is uncommon, be sure to check if your lender charges a prepayment penalty — it’s a fee some lenders require if you pay off your car loan early. Since lenders make money on interest over the life of the loan, a prepayment penalty can help recoup their losses.

3. Understand your car’s equity

The payoff amount and value of your car determine the equity in your car. To find your equity, take the payoff amount and subtract it from your car’s value. This can have two outcomes:

Positive equity is when your car is worth more than what you owe. If your vehicle is worth $20,000 and your loan balance is $15,000, then you have $5,000 worth of positive equity in your car.
Negative equity — also known as an upside-down car loan — occurs when your car is worth less than what you owe. If your vehicle is worth $20,000 and your loan balance is $25,000, you’ll need an extra $5,000 to pay off your auto loan.

4. Discuss the sale with your lender

Before making any decisions, it’s a good idea to talk to your lender about selling your car. The lender can provide you insight as to any specific instructions or requirements you’ll need to meet. The lender could also inform you of any dealers it works with directly to sell your car.

How car equity impacts the sale of your vehicle

Your car equity can make a difference as to how easy or difficult it could be to sell your car. While a car with positive equity can be simple to sell, negative equity may indicate that it’s not worth selling.

Selling a car with negative equity

If you do the math and find that you’re upside-down on your car loan, you might want to think twice about selling your vehicle. If you owe more on your car than it’s worth, your sale proceeds won’t be enough to pay off your loan. Essentially, you’ll have to pay someone to take your car off your hands — this is a bad financial position to be in.

However, you still have some options:

Cover the difference out of pocket. If you have flexibility in your budget and really need to unload your car, you can bridge the gap between your car’s value and loan balance with your own savings. Just be sure you aren’t using money you’ve allocated to other purposes, like bills or investments.
Wait to sell. If you take some time and make extra payments toward your car loan, you can eventually build up the equity in your car until it exceeds the amount that you owe. You can also refinance your car loan to help you build equity faster, just as long as you secure a lower interest rate than what you’re currently paying.
Sell your car privately. A private sale can earn you more money than trading it in, and those extra funds could cover your underwater car loan. You can do this by selling your car on Craigslist or other similar sites.
Roll the negative equity into your next car loan. You can do this by trading in your current vehicle and getting a new auto loan that includes your negative equity. However, this means you’ll start off upside-down on your car loan and your monthly payments may be higher.

Tip

If you need another car loan, check your credit score with a service like LendingTree Spring and get preapproved for an auto loan before you go to the dealership, so the dealer won’t try to inflate your APR.

Selling a car with positive equity

In most cases, a car with positive equity is much easier to sell and pay off. You may even make a small profit off the sale of your car which you can put toward a new car.

Once you find a buyer, you’ll use the money to cover the loan payoff amount and transfer the car title to the new owner. If you decide to sell through a dealer, the dealer can help you with this. With a private sale, however, you’ll need to navigate this yourself.

Keep in mind that if you plan to sell your car privately, be sure to write a bill of sale to remove any liability on your end. This can come in handy if the new owner gets into an accident with the car, as it shows you no longer own the vehicle and can’t be held legally responsible.

What to do when the bank wants the payoff before you sell your vehicle

If you want the lender to release the car title to the buyer, you’ll need to cover the full loan payoff amount.

If the bank wants the payoff amount before you sell the car, explore these options:

Refinance your auto loan

If you can qualify for a lower rate, you can refinance your car. This strategy could help you build equity faster, as each payment will have a larger percentage assigned to principal instead of interest.

You can also apply for a longer loan term, which can lower your monthly payments. Just be aware that you’ll end up paying more in interest over the life of the loan than you would with a shorter term.

Take out a personal loan

Using a personal loan to pay off a car may be a good idea if you have good credit and can qualify for low rates. Once you receive your loan funds, you can send them to your auto lender and receive your car title. However, because personal loans are typically unsecured, they may come with higher rates than your auto loan.

Use your savings

Instead of refinancing or taking out a new loan, you can cover the cost of your loan balance with your savings. While this could take a chunk out of your hard-earned funds, you could avoid paying interest and fees. This may be a good option, especially if you have bad credit.

Frequently asked questions

You can sell a car with a loan, but you’ll generally need to give the full payoff amount to your lender before they’ll release the car title. You can do this with your funds after you complete the sale, or you can refinance your car loan or apply for a personal loan.

To sell or trade in a car, you’ll need the car title. But if the car was financed by someone else, they’ll need to pay off the loan balance so the lender can transfer the title. Once you get the title, you can trade in the vehicle.

You can usually only transfer the title of a financed car if the entire loan is paid off. In most states, the lender possesses the car title of a financed car, so you won’t be able to get the title until the loan is paid off. To transfer the car title, visit your state’s motor vehicles department website — it’s likely you’ll need to make an office trip for that transaction, but some states may allow you to transfer your car title online.

Selling a financed car to a private buyer or dealership likely won’t hurt your credit. However, if you have negative equity, you might need to refinance your auto loan or take out a personal loan to cover the difference between your car’s value and what’s left on your loan. That could make your credit score drop by a few points.

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