Can I Sell My Car If I Still Owe Money on It?

You can sell your car even if you still owe money on it. When you finance a vehicle, the lender, known as the lienholder, maintains a legal claim on the car until the loan is fully repaid. The lienholder holds the car’s title, which is the legal document proving ownership. The car serves as collateral for the loan, giving the lender the right to repossess it if payments are not made. Selling a financed car requires the lien to be satisfied and released before ownership can be transferred to a new buyer.

Determining Your Loan Payoff

Before selling a financed car, determine the exact amount required to pay off your loan, known as the payoff amount. This figure is distinct from your current outstanding balance. The payoff amount includes the principal balance, any accrued interest up to a specific date, and sometimes other fees. This difference arises because interest on auto loans accrues daily, a concept known as per diem interest.

Per diem interest means interest accrues daily. As your principal balance decreases, the daily interest amount also reduces. Therefore, a payoff quote is only valid for a specific period, typically a few days or weeks, because the exact amount owed changes with each passing day.

To obtain an accurate payoff quote, contact your lienholder. Many lenders provide this information through online banking portals or customer service phone lines. When requesting a payoff quote, you will need to provide your loan account number and Vehicle Identification Number (VIN).

Request a written payoff quote, which will include a clear expiration date. This document ensures you have the precise amount needed to fully satisfy the loan within the specified timeframe.

Methods for Selling a Financed Car

There are two main avenues for selling a car with an outstanding loan: a private sale or a trade-in at a dealership. Each method has a distinct approach to handling the existing lien.

A private sale involves selling your vehicle directly to another individual. The buyer’s funds are typically used to pay off the existing loan directly to your lienholder. The lienholder must formally release their claim on the vehicle and provide the title once the loan is satisfied. This approach often allows you to secure a higher selling price compared to a dealership trade-in.

Alternatively, you can trade in your financed car at a dealership when purchasing a new vehicle. Dealerships manage the payoff process directly with your lender. The trade-in value of your car is applied as a credit toward your new purchase. If your car’s trade-in value exceeds the remaining loan amount, the positive equity can be used to reduce the cost of your new vehicle or as a down payment.

However, if your outstanding loan balance is greater than the car’s trade-in value, you have negative equity, or are “upside down” on your loan. The difference will need to be paid by you, either out of pocket or by rolling the negative equity into the financing of your new car. This increases the new loan amount and potentially your monthly payments. While trading in offers convenience, it might result in a lower valuation for your car compared to a private sale.

Completing the Transaction and Title Release

Finalizing the sale of a financed car involves steps to ensure the loan is satisfied and the title is legally transferred. The actions required depend on whether you opt for a private sale or a dealership trade-in. Both methods aim for the proper release of the lien and the transfer of ownership.

For a private sale, the lienholder’s involvement is important. The buyer’s payment must go directly to your lender to pay off the loan. This can be facilitated by the buyer making a check or secure wire transfer payable directly to your lienholder. If the sale price exceeds the payoff amount, the lender will send the surplus funds to you after satisfying the loan.

Once the loan is fully paid, the lienholder will issue a lien release, confirming their claim on the vehicle has been satisfied. The process for obtaining the physical title varies by state; some states automatically mail a clean title, while others require you to submit the lien release to the Department of Motor Vehicles (DMV) for an updated title. Obtain a bill of sale for the transaction, and only transfer the title to the new owner once you have it free and clear from the lienholder.

When trading in your car at a dealership, the process is streamlined, as the dealership handles the administrative work. Provide the dealership with your loan account information and lienholder contact details. The dealership will communicate directly with your lender to obtain the payoff amount and facilitate the payment of your existing loan.

You will sign documents authorizing the dealership to pay off your loan and transfer the vehicle’s title to them. Confirm in writing that the dealership will pay off your loan and follow up with your lienholder to ensure the payoff is completed in a timely manner.