Can You Sell a Car You Have a Loan On?
Can you sell a car with an active loan? Absolutely. This guide provides clear, practical steps to successfully manage the sale and transfer ownership.
It is possible to sell a vehicle with an outstanding loan. While it involves additional steps compared to selling a car with a clear title, understanding these requirements ensures a smooth transaction. This guide explains the necessary procedures.
Understanding Your Car Loan and Title
When you finance a vehicle, the lender typically places a lien on the car. This lien is a legal claim that gives the lender a right to the property until the loan is fully repaid. Because of this, the lender, rather than you, generally holds the vehicle’s official title document. The title serves as proof of ownership and cannot be transferred to a new owner until the lien is satisfied and removed.
Before a sale, obtain an accurate payoff amount from your lender. This amount includes the remaining principal, accrued interest, and administrative fees. It differs from your current balance due to accruing interest until payment is processed. Request this information by contacting your lender or accessing their online portal.
The payoff quote is valid for a specific period, typically 7 to 10 days. Interest accrues daily, so the amount changes over time. Understanding this date helps plan the sale and ensure the payment covers the debt.
Options for Selling a Financed Car
Several avenues exist for selling a car with an outstanding loan. A common approach is a private party sale. The buyer might pay the lender directly, or you might pay off the loan first. This method often offers a higher sale price.
You can also sell your financed car to a dealership, either as a trade-in or a direct sale. For trade-ins, the dealership handles the loan payoff and applies equity towards your new car. If selling outright, they manage the payoff and issue a check for the difference. Dealership sales are often more convenient, as they handle the paperwork.
A significant consideration in any sale is whether your car has negative equity. This occurs when the outstanding loan balance is greater than the vehicle’s current market value. If you have negative equity, you will need to cover the difference between the sale price and the payoff amount out of pocket to complete the transaction. This payment might be made directly to the lender or rolled into a new car loan if you are trading in your vehicle.
The Selling Process
Once you decide on a selling option, contact your lender for a precise payoff quote. Confirm how they will release the lien and send the title once the loan is paid. Some lenders mail a physical title, while others release the lien electronically, requiring you to obtain a new title from the Department of Motor Vehicles (DMV) or equivalent state agency.
In a private sale, the buyer typically pays the lender directly for the payoff amount, with any remaining balance paid to you. Alternatively, you can pay off the loan yourself, receive the clear title, and then sell the car. For larger sums, an escrow service can hold funds until the lien is released and title transfer begins.
After the loan is paid, the lender will process the lien release. This can take 10 to 20 business days for the lien to be removed and the title mailed or electronically released. Confirm the timeline for title release and ensure the lien is removed before transferring ownership.
Upon receiving the clear title, transfer it to the new owner. This usually involves signing the title over to the buyer, often with a notary, and completing transfer forms. A bill of sale is advised, providing a written record including VIN, sale price, date, and buyer/seller information. Notify your state’s DMV within 5 to 10 days that the vehicle has been sold and cancel your auto insurance.