Can You Sell a Car That Is Financed?

Selling a car that is currently financed is possible. While the process involves specific steps due to the outstanding loan, it is a manageable transaction. Understanding the procedures ensures a smooth transfer of ownership and proper settlement of the existing debt.

Understanding Your Loan and Car Title

When a vehicle is financed, the lender, such as a bank or credit union, places a legal claim on the car, known as a lien. This lien is recorded with the state’s Department of Motor Vehicles (DMV) and typically listed on the vehicle’s title. The lien serves as collateral for the loan, giving the lender the legal right to repossess the car if the borrower fails to meet the loan terms. Until the loan is fully repaid, the lender holds ownership interest, and the borrower cannot legally sell or transfer ownership without addressing this lien.

Before selling, obtain an accurate payoff quote from your lender. This quote represents the exact amount required to fully satisfy the loan, including the principal balance, any accrued interest, and potentially per diem interest (daily interest accrual). It might also include any applicable fees or prepayment penalties.

You can typically request a payoff quote through various channels, such as your lender’s online portal, by phone, or through a written request. A payoff quote is usually valid for a limited period, often 7 to 30 days, because interest continues to accrue daily. The lender will only release the lien and send the vehicle’s title to you, or directly to the new buyer in some cases, once the loan is completely paid off.

Selling to a Private Buyer

Selling a financed car directly to a private buyer requires careful coordination to ensure the loan is satisfied and the title is properly transferred. The buyer’s payment typically covers the outstanding loan amount, with any remaining funds, representing your equity, being disbursed to you. This often involves the buyer making a payment directly to your lender via a cashier’s check or wire transfer.

Contact your lender to provide transaction details and coordinate the payoff. Once the lender receives the full payoff amount, they will release the lien, and the title will be sent to the appropriate party, which could be you or the new buyer, depending on state regulations and lender policies. The process for receiving the title after payoff can take anywhere from a few days to several weeks, depending on the lender and state’s processing times. After you receive the clear title, you can then sign it over to the new owner.

In addition to managing the loan payoff, complete a bill of sale to document the transaction and notify your state’s Department of Motor Vehicles (DMV) or equivalent agency about the change in ownership. If the car has negative equity (you owe more than its sale price), you must cover that difference out of pocket to satisfy the loan. This can involve using personal savings or, in some situations, securing a personal loan to bridge the gap.

Selling to a Dealership

Selling or trading in a financed car to a dealership can offer a more streamlined process compared to a private sale. Dealerships are accustomed to handling vehicles with outstanding loans and typically manage the loan payoff directly with your lender. This often simplifies the transaction for the seller, as the dealership takes on the administrative burden of lien release and title transfer.

The dealership will appraise your vehicle to determine its trade-in value, which is then applied against your outstanding loan balance. If your car’s value exceeds the payoff amount, the dealership will pay off your loan and apply the remaining positive equity as a credit toward your new vehicle purchase or provide it to you directly. Conversely, if you have negative equity (the loan balance is greater than the car’s trade-in value), you must cover that difference. This can be done by paying the dealership the outstanding amount, or in some cases, the negative equity might be rolled into the financing of your new vehicle.

While rolling negative equity into a new loan can seem convenient, it increases the total amount financed and can result in higher monthly payments on the new loan. Dealerships generally handle the necessary paperwork for the loan payoff and title transfer, often expediting the process. However, obtain written confirmation from both the dealership and your original lender that the loan has been fully satisfied to ensure proper account closure.