Can I Sell a Car I’m Making Payments On?

It is possible to sell a car even if you are still making payments on it, though the process involves specific steps to ensure the outstanding loan is properly handled, as the lender typically holds the vehicle’s title as collateral until the loan is fully satisfied. Navigating this process requires understanding your financial standing and the various methods available for selling a financed vehicle.

Determining Your Car’s Financial Standing

Before initiating any sale, understanding your car’s financial position is important. The first step involves obtaining an official payoff quote from your lender. This amount is distinct from your current loan balance, as it includes accrued interest up to a specific future date, often referred to as per diem interest, and any potential fees. Lenders typically provide this quote through online portals, phone calls to their loan department, or sometimes on monthly statements. The quote usually has a validity period, such as 10 to 30 days.

Once you have the payoff quote, you can determine your car’s equity. Equity is the difference between your car’s market value and the payoff amount. Positive equity occurs when the car’s estimated value exceeds the payoff amount, meaning you would have money left over after satisfying the loan. Conversely, negative equity, often termed being “upside down” or “underwater,” means the payoff amount is greater than the car’s value, requiring you to pay the difference to clear the loan. You can estimate your car’s market value using reputable online resources like Kelley Blue Book, Edmunds, or NADA guides, which provide valuations based on factors such as make, model, mileage, and condition.

Understanding who the lienholder is and how they manage the title is also important. In many states, the lienholder holds the physical title or an electronic record of it. The title cannot be transferred to a new owner until the lien is formally released by the lender.

Selling Methods and Loan Considerations

Several avenues exist for selling a car with an outstanding loan, each with distinct procedures for handling the existing debt. The chosen method depends on factors like your car’s equity and your preference for convenience versus maximizing the sale price.

Selling to a private party can potentially yield a higher sale price than other options. However, it introduces complexities because the lienholder holds the title. The buyer typically pays the agreed-upon price, and the seller then uses these funds, along with any additional money if in a negative equity position, to pay off the loan. The title transfer requires the lien to be released. This might involve the buyer and seller completing the transaction at the lender’s branch, or the seller waiting for the lien release and title from the lender after payoff to then sign it over to the buyer.

Trading in your car at a dealership is often the most straightforward option. Dealerships are accustomed to handling existing loans; they typically obtain the payoff quote directly from your lender and pay off the loan as part of the transaction. If you have positive equity, the remaining amount is applied as credit towards your new vehicle purchase. If you have negative equity, the dealership may roll the outstanding balance into your new car loan, increasing the amount financed and potentially your monthly payments.

Selling your car to a dealership or a car-buying service functions similarly to a trade-in, but without the immediate purchase of a new vehicle. These entities will also request a payoff quote and directly pay the lender to clear the lien. This method offers convenience and a relatively quick sale, as the third party manages the loan payoff process.

Finalizing the Sale and Loan Payoff

The final stage of selling a car with an outstanding loan involves completing the payment and title transfer process. Once a buyer or dealership commits to the purchase, the loan must be fully paid off to enable the transfer of ownership. It is advisable to use certified funds, such as a cashier’s check, for the payoff to ensure prompt processing.

After the loan is fully satisfied, the lienholder will issue a lien release. This document formally confirms that the debt has been paid and their claim on the vehicle is relinquished. The lien release is necessary paperwork for transferring the title. The time it takes to receive the lien release and clear the title can vary, often ranging from a few days to several weeks, depending on the lender and state regulations, especially if the title is held electronically.

The process for transferring the vehicle title to the new owner follows the lien release. In states where the lienholder holds the title, they will either send the lien-free title directly to the seller or, less commonly, to the new owner. The seller then signs the title over to the buyer, along with a bill of sale and any other required state-specific paperwork, such as an odometer disclosure statement. The buyer then registers the vehicle and obtains a new title in their name through the Department of Motor Vehicles or equivalent state agency.