Can I Sell a Car I Owe Money On?

Selling a car with an outstanding loan balance is possible. This process involves specific steps to address the loan and transfer the vehicle’s title. Successfully navigating the sale requires understanding your financial standing and following appropriate procedures.

Determining Your Car’s Financial Standing

Before attempting to sell a vehicle with an existing loan, determine its financial standing. Obtain the current payoff amount for the loan and assess the car’s market value. The payoff amount is the exact figure required to fully close the loan on a specific day, encompassing the principal balance, any accrued interest, and potential fees. It differs from the remaining balance on a monthly statement because interest accrues daily, known as per diem interest. Contact your loan servicer directly for this payoff amount, which is valid for a limited period, often 7 to 10 days.

Next, determine your vehicle’s market value. Use online valuation tools such as Kelley Blue Book, Edmunds, or NADA Guides, or compare your car to similar listings in your area. Comparing your loan payoff amount and market value reveals your equity position.

Positive equity exists when your car’s market value exceeds the loan payoff amount. Conversely, negative equity occurs when the market value is less than the amount owed, often referred to as being “upside down” or “underwater.” Understanding this distinction is important, as it dictates the selling procedures.

Selling When Your Car Has Positive Equity

When your car has positive equity, its market value is greater than the outstanding loan amount. This generally simplifies the selling process, as sale proceeds should be sufficient to cover the loan payoff. Contact your lienholder to understand their requirements for releasing the title once the loan is satisfied. Lenders hold the vehicle’s title until the loan is fully paid, then release their lien.

When selling privately, the buyer provides funds for the purchase. It is advisable to conduct the transaction at your lending institution, if possible, allowing the buyer to pay the lender directly for the payoff amount. The lienholder will release their lien within 3 to 10 business days after receiving cleared payment, mailing the title to you or notifying the Department of Motor Vehicles (DMV) of the release. Once you receive the title, sign it over to the new owner; any remaining funds will be returned to you.

If selling or trading to a dealership, the process is more streamlined. Dealerships handle vehicles with existing liens and manage the payoff directly with your lender. They deduct the payoff amount from the agreed-upon value, handle the title transfer, and provide any surplus funds.

Selling When Your Car Has Negative Equity

Selling a car with negative equity means the outstanding loan amount is greater than its market value. The seller must cover the difference between the sale price and the loan payoff amount. One direct option is to pay the deficit in cash directly to the lender at the time of sale. For instance, if you sell your car for $15,000 but owe $18,000, you would need to pay $3,000 to the lender to clear the loan and obtain the title.

Alternatively, if selling to a dealership, they may offer to incorporate the negative equity into a new car loan. This means the deficit from your old loan is added to the principal of your new vehicle loan. While this can seem convenient, it results in a larger new loan, potentially higher monthly payments, and a longer repayment term, effectively starting your new loan already “upside down.” This option is not available for private sales. Regardless of the chosen method, maintaining open communication with your lienholder is necessary to facilitate the payoff and ensure title release.