Can You Sell a Car You Are Financing?

It is possible to sell a car even if there is an outstanding loan on the vehicle. This process involves additional steps compared to selling a car with a clear title. The lender, known as the lienholder, has a legal claim to the vehicle until the debt is fully satisfied. The sale requires attention to the loan payoff and title transfer.

Understanding Your Car Loan and Title

When a car is financed, the lender acts as the lienholder, holding a security interest in the vehicle until the loan is completely repaid. The car’s title, the legal document proving ownership, is typically held by the lienholder, indicating their claim.

Before selling a financed car, obtain an accurate payoff quote from the lender. This quote represents the exact amount required to fully satisfy the loan, including any accrued interest, as of a specific date. Payoff quotes are time-sensitive due to the daily accrual of interest.

Determine if the vehicle has negative equity, which occurs when the outstanding loan balance is greater than the car’s current market value. For example, if a car is valued at $15,000 but has a loan balance of $18,000, there is $3,000 in negative equity. Any negative equity must be covered by the seller to complete the loan payoff.

Selling Your Car to a Dealership

Selling a financed car to a dealership often simplifies the process, as dealerships are accustomed to handling vehicles with existing loans. The dealership appraises the vehicle to determine its value and provides an offer, either as a trade-in credit or a direct cash offer.

Once an agreement is reached, the dealership contacts the lienholder to obtain the final payoff amount. The dealership then directly sends the funds to the lender to clear the outstanding loan balance, streamlining the payoff process for the seller.

If the car has negative equity, the dealership incorporates this into the transaction. This might involve rolling the negative equity into the financing of a new vehicle. Alternatively, the seller may pay the dealership the difference between the payoff amount and the car’s value. The dealership handles the paperwork for the loan payoff and title transfer.

Selling Your Car to a Private Party

Selling a financed car to a private party requires more direct involvement from the seller in managing the loan payoff and title transfer. An accurate payoff quote from the lienholder is essential, as this amount must be paid to release the lender’s claim on the vehicle. The buyer’s payment will satisfy this outstanding loan.

The buyer can either pay the seller directly, who then uses those funds to pay off the loan, or the buyer may pay the lender directly. After the loan is fully paid, the lienholder will release their lien on the vehicle. This involves the lienholder mailing the car title to the seller, a process that can take several weeks.

Upon receiving the clear title, the seller can then transfer ownership to the private buyer. This involves signing over the title and completing a bill of sale. If there is negative equity, the seller must provide additional funds to cover the difference between the sale price and the loan payoff amount.