Can You Sell a Car While Still Making Payments?
Learn the precise steps to sell your car while still making payments. Understand how your financial situation impacts the process and what's required for a legal sale.
Selling a car while still making payments is a common situation. It is permissible to sell a vehicle with an outstanding loan, but the process requires careful attention to ensure the loan is fully satisfied and ownership is legally transferred. This involves managing the existing loan, determining the vehicle’s value, and handling the title transfer.
Understanding Your Loan Status
Before initiating a sale, assess your current financial standing regarding the car loan. Obtain the precise payoff amount from your lender by contacting your loan servicer directly via phone, online banking portal, or by reviewing recent statements. The payoff amount is the total sum required to close the loan on a specific date, which may differ from your current balance due to accrued interest or per diem charges.
Next, determine the car’s current market value. Use reputable online valuation tools like Kelley Blue Book, Edmunds, and NADA Guides. These platforms consider factors such as the vehicle’s make, model, year, mileage, condition, and optional features to provide an estimated private party sale value. You can also obtain offers from local dealerships for a baseline valuation.
Once you have both the loan payoff amount and the car’s market value, calculate your equity. Equity is the difference between the car’s market value and the outstanding loan balance. If the car’s market value exceeds what you owe, you have positive equity. If the loan balance is greater than the car’s market value, you are in a negative equity position, sometimes called “upside-down” on the loan. Knowing this figure is important for planning the sale.
Selling When You Have Positive Equity
When the car’s market value is greater than the outstanding loan amount, you have positive equity. The buyer’s payment should cover the loan payoff, with any remaining funds going to you. One common approach involves the buyer paying the full agreed-upon sale amount directly to you, and you then immediately pay off the loan. Another option is for the buyer to make two separate payments: one directly to the lender for the payoff amount, and the remaining balance to you.
Upon the full payoff of the loan, the lender will initiate a lien release. This legal document confirms that the debt has been satisfied and the lender no longer has a claim on the car. The process for receiving the clear title varies; in some states, the lender sends the lien release directly to the DMV, which then mails the updated title to you. In other states, the lender might send the lien release directly to you, and you are then responsible for submitting it to the DMV to obtain a clear title. This process typically takes a few business days for electronic releases or several weeks for paper documents.
While waiting for the physical clear title, a bill of sale, signed by both parties, can document the sale and terms. Proof of the loan payoff, such as a confirmation letter from the lender, can also be provided to the buyer. This allows the buyer to take possession while the clear title is processed and mailed, ensuring a smooth transition of ownership.
Selling When You Have Negative Equity
Selling a car when you have negative equity means you owe more than the car is worth. In this scenario, you are responsible for covering the difference between the sale price and the total loan payoff amount. The buyer typically pays the agreed-upon sale price, and you must then provide the remaining funds to the lender to fully satisfy the loan.
Options for covering this financial gap include using personal savings or cash. You could also obtain a personal loan specifically for the negative equity, which would be repaid separately. If you are trading in the vehicle at a dealership, they might offer to roll the negative equity into the financing of a new car purchase, adding the outstanding balance of your old loan to your new car loan.
Once the negative equity is covered, the process then mirrors a sale with positive equity. The full loan payoff is made to the lender, triggering the lien release. The clear title is then issued, allowing the transfer of ownership to proceed without any encumbrances.
Finalizing the Sale and Title Transfer
After the car loan is satisfied and the lien released, formally transfer ownership to the buyer. This requires several documents. The clear car title serves as legal proof of ownership. The seller must sign the title over to the buyer, and in some jurisdictions, this signature may need to be notarized.
A Bill of Sale acts as a receipt and record of the transaction. It details the vehicle’s information (VIN, make, model, year, odometer reading), sale price, date of sale, and the full names and addresses of both the buyer and seller. This document protects both parties by outlining the terms and conditions of the sale. An Odometer Disclosure Statement, often on the title or a separate form, is required by federal law for most vehicles. This statement certifies the vehicle’s mileage at the time of transfer. If the lien release was a separate document, provide it to the buyer or the DMV.
Transfer procedures vary by state, but typically involve the buyer and seller visiting the DMV. The seller provides the signed title and other necessary documents. The buyer submits these along with identification and payment for applicable taxes and fees to register the vehicle. The buyer is responsible for registering the vehicle, obtaining new license plates, and ensuring it meets all state requirements, usually within a specific timeframe after the purchase.