How To Sell a Car With a Loan
Even if you still have an auto loan, you can still sell your car, though it does add a few extra steps. However, whether you should sell depends on a variety of factors including how much is left on your loan and how much you can sell your vehicle for.
4 steps on how to sell a car with a loan
To sell a car with a loan on it, you’ll need to determine what’s left on your loan and keep your lender in the loop. Whether you’re going to a private or commercial buyer, here’s a step-by-step guide on how to sell a financed car without paying it off.
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 such as Kelley Blue Book (KBB) and Edmunds. These resources will factor in the make, model, mileage and age of your car.
KBB and Edmunds can give you the 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 to compare. These include used-car buyers such as Carvana and CarMax. You’ll need to provide information such as 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 will 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.
While not common, be sure to check if your lender charges a prepayment penalty. This is 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, is when your car is worth less than 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 does car equity impact 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, this could make it more challenging to sell your vehicle. This is because you’ll have to cover the difference between your car’s value and the loan payoff amount.
If you find yourself in this position, you have several options:
- Cover the difference out of pocket. If you have flexibility in your budget, you can bridge the gap between your car’s value and loan balance and pay the difference. However, depending on how much you’ll owe, you may need to dip into your savings account.
- Wait to sell. If you take a beat and make extra payments toward your car loan, you can eventually make your way toward positive equity. 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. 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. This means you’ll start off upside-down on your car loan and your monthly payments may be higher.
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, 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 you have positive equity, your lender will reimburse the difference. If you still owe money on the loan, you’ll need to pay the difference.
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. You can also apply for a longer loan term which can lower your monthly payments. This strategy could help you build equity faster.
- 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 can avoid paying interest and fees. This may be a good option, especially if you have bad credit.
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