How to Sell Your Car When You Still Have a Loan

Most people consider selling a car while having an outstanding loan hectic and complicated compared to selling a wholly owned vehicle. When you have an outstanding car loan, the lender’s name is usually listed on the car title, or the lender can hold the title. This ensures you cannot sell the vehicle or transfer the title to a new owner without involving the lender.

However, with proper guidance and planning, it is possible to sell a car if you still have a loan on it. Here is a comprehensive guide on how to sell your car when you still have a loan, whether you want to upgrade to a new ride or simply sell your existing one.

Know your car's market value

Whenever you plan to sell a car, it's important to start by getting a realistic estimate of how much your vehicle is worth. To kick start your search, you will need details about your vehicle, such as the make, model, mileage, year of manufacture, your address, and the car's general condition. Due to the changes in the supply chain, mainly due to the COVID-19 pandemic, there is a ready market for both old and new vehicles.

It is also important to note that the value of your car may go down depending on the amount you owe the lender, especially in cases where the loan interest is high or the loan taken is long-term. There are online resources that can help you find out the value of your car quickly, such as Edmunds, NADA, and Cars.com.

It’s also helpful to search for websites where other people are selling their new and used vehicles to see listings for cars like yours. While a certain price doesn’t mean they will sell for that, it’s a great way to get an idea of the average pricing in the market.

Gather information about your loan

Before you speak to a buyer and accept their offer, you will need to work out how much debt you still owe. You can get this information by requesting your lender the payoff amount on your auto loan. The payoff amount is the total sum you need to pay to clear your loan balance. Due to aspects such as prepayment penalties and interest calculation, the figure might differ from the balance listed on your loan statement.

Compare the loan balance to the estimated value of your vehicle to know whether the car has enough value to pay off the loan. This step is essential before you put up your car for sale. If you determine that the possible sale price of the car will be insufficient to pay off the loan, you will have to look for that cash, or else you won’t be able to sell the car.

Assess your car equity

Equity refers to the difference between your outstanding auto loan balance and your car value. You need to know the equity before selling your car, as it will help you in pricing. If the car value is higher than the outstanding loan, this means that your equity is positive. If your outstanding loan is higher than the car value, this translates into a negative equity.

For example, if your car is worth $30,000 and your outstanding loan is $35,000, your equity is negative, also known as upside down on the loan. This is because you will still owe the lender $5,000, meaning you need to dive into your pockets to clear the remaining amount. It’s best to be prepared for either a positive or negative equity scenario and proceed cautiously.

Discuss the sale with your lender

After knowing your equity, it’s essential to discuss the options and the way forward with your lender. With positive equity, you are guaranteed to clear the auto loan with the amount from the sale and keep the extra cash for yourself. On the other hand, if your equity turns negative, you will have to discuss repayment options with the lender. Online lenders such as myAutoloan have different processes in such a scenario; you may be required to pay the remaining amount separately or agree on a settlement.

Prepare the car for sale

You can now list your car for sale, but ensure it is in perfect condition. You can start by cleaning the interior and exterior, attending to any mechanical issues, and compiling all the crucial car details, such as the loan and maintenance. You can also get a presale inspection to ensure that all hidden problems are identified. It will be easy for you to get a buyer for a well-maintained vehicle.

Determine the selling price

Now that you have thoroughly prepared your car for sale, the next step is to set the selling price. While setting the price, you should ensure that it is negotiable and competitive and that you are being transparent to the buyer about the existing loan and how it will affect the buying process. You can put the price slightly above the market value with positive equity.

Find a buyer

This is one of the most crucial steps when selling a financed car. You can sell the car privately, through a dealership, or via various online platforms to reach a wider audience. Before choosing any of these listed methods to sell your vehicle, ensure you have enough information regarding the pros and cons of each selling method to avoid any unnecessary inconveniences. Beware of scammers.

Negotiate the sale

After finding your prospective buyer, ensure you use the right negotiation approach. Ensure transparency about your outstanding loan. You can read guides online on how to negotiate during a car sale to ensure that you make the best out of it.

At this point, with a positive equity, you can pay the outstanding loan. Also, with a negative equity, you can discuss the way forward regarding the payoff with the buyer and the lender. During this process, ensure that none of the parties is left out.

Notify the lender

You can’t legally sell something you don’t own, meaning you must notify your lender before you can sell your financed vehicle. You also want to ensure the settlement figure is paid off, as your lender could take you to court for breaching the agreement if you don’t do so.

Besides that, there are more legal considerations for selling a car. It’s recommended that you get a list of the specific requirements in your state from the Department of Motor Vehicles and ensure you follow them to the letter.

Finalize the sale

There are a number of activities to be conducted to ensure that the sale is duly finalized. First, all the sale paperwork should be filled out. This includes papers to do with the bill of sale and release of liability. Next, the transfer of ownership should be done in line with the state requirements. Also, to finalize the deal, you should cancel your insurance to avoid unnecessary expenses.

Summing it up

Selling a car when you have an outstanding loan can be tricky, but it’s possible. These simple steps can make navigating the whole process easier, especially if you believe selling a car that you still owe money on is the right financial decision. You can also consider professional financial advice to avoid unnecessary losses while selling a financed car.