Can I Sell My Car With a Title Loan On It?

Selling a car with an active title loan presents unique considerations, as the vehicle’s title is held as collateral. While this adds complexity compared to selling a car with a clear title, it is generally possible. The process involves understanding title loans and coordinating with the lender and prospective buyer to ensure a legal and smooth transfer of ownership.

Understanding Title Loan Implications for Selling

A title loan is a secured loan where the borrower uses their vehicle’s title as collateral. The lender holds a legal claim, or lien, against the vehicle until the loan is fully repaid. The lender’s name is typically listed on the car’s title as the lienholder, indicating their financial interest. This arrangement prevents the car’s owner from transferring clear ownership without the lender’s involvement.

The presence of a lien means the lender can repossess the vehicle if loan obligations are not met. Until the title loan is paid off and the lien released, the lender maintains a legal interest in the car. A new buyer cannot obtain a clear title until the existing loan is satisfied, as most buyers require a clear title for full ownership.

Steps to Sell Your Car with an Active Title Loan

Selling a vehicle with an active title loan requires careful coordination and transparency. The initial step is to contact your title loan lender to obtain the precise payoff amount for your loan. This amount includes the remaining principal balance and any accrued interest or fees. Request this payoff quote in writing and understand any specific instructions for loan settlement and title release.

Once you have the payoff information, be transparent with potential buyers about the title loan. Explaining the process to clear the loan and transfer the title builds trust and avoids misunderstandings. The buyer will not receive a clear title until the loan is satisfied.

There are two primary approaches for the sale: a private sale or selling to a dealership. In a private sale, the buyer typically pays the lender directly for the loan amount, with any remaining balance going to you. This often involves meeting at the lender’s branch or a bank, where the buyer’s funds pay off the loan, and the lender initiates the title release. This coordination ensures the lien is removed promptly and the buyer receives a clear title.

Selling to a dealership often simplifies the process, as dealerships are accustomed to handling existing liens. They will contact your title loan lender to obtain the payoff amount directly. The dealership then pays off the title loan as part of the purchase or trade-in transaction, deducting the loan payoff from the agreed-upon vehicle price. This method is less complex for the seller, as the dealership manages the lien satisfaction and title transfer directly.

After the loan is fully paid off, the lien will be released by the lender. This can take several business days, with some lenders indicating a process of 7-10 business days for the lien release and title mailing. Once the clear title is received, transfer it to the new owner by signing the title and completing required paperwork, such as a bill of sale and odometer disclosure statement. The new owner will then take these documents to their local Department of Motor Vehicles (DMV) to register the vehicle and obtain a new title in their name.

Handling Sale Price Differences and Loan Balances

Understanding the financial outcomes based on the car’s sale price relative to the outstanding title loan balance is important. If the sale price of your vehicle exceeds the remaining balance of your title loan, you will receive the surplus funds after the loan is paid off. For instance, if you sell your car for $8,000 and the loan payoff is $5,000, you would receive $3,000. This transaction can be structured with the buyer paying the lender the loan amount and then paying you the remainder, or the buyer paying the full amount to you, and you immediately use a portion to pay off the loan.

A more challenging scenario arises if the sale price is less than the outstanding title loan balance, often referred to as negative equity. In this situation, you will be responsible for paying the difference out of pocket to the title loan lender to clear the loan. For example, if your car sells for $4,000 but your loan balance is $5,000, you would need to pay the additional $1,000 to the lender to satisfy the debt. These additional funds are necessary to complete the sale and ensure the lien is removed, allowing the title to be transferred to the new owner.