How to Sell a Car That Has a Loan
Unlock the straightforward process of selling a car with an outstanding loan. Get clear guidance for a smooth transaction.
Selling a car with an outstanding loan involves legal and financial steps. Unlike selling a vehicle you own outright, your lender maintains a legal interest in the car. This means the car’s title is not solely in your possession, requiring coordination for a smooth transfer of ownership.
Gathering Loan and Title Information
Before listing a car for sale, obtain precise details about the outstanding loan. Contact your lender to request a payoff amount, which is the exact sum needed to fully satisfy the loan on a specific date. This amount differs from your current outstanding balance because it includes “per diem” interest, the daily interest that accrues until the payoff date. Obtaining this accurate figure is important, as even a slight delay can alter the final amount due.
A car loan involves a lien, a legal claim the lender has on your vehicle until the debt is fully repaid. The lender’s name is noted as a lienholder on the car’s title, signifying their financial interest. You do not possess the clear title, the document proving sole ownership, until the lien is formally released. The lien ensures the car serves as collateral for the loan.
Possessing this detailed information about your loan and lien status is important for a successful sale. It allows you to accurately inform potential buyers about the financial obligations tied to the vehicle. This transparency helps in planning the transaction process, ensuring all parties understand the sequence of events required to clear the lien and transfer ownership.
Navigating Different Sale Methods
Selling a car with an outstanding loan involves distinct procedures depending on whether you sell to a private party or a dealership. Each method requires careful handling of the loan payoff and title transfer. The approach taken will influence the payment and documentation steps.
When selling to a private party, the transaction typically requires the buyer’s funds to first clear the existing loan. The buyer provides a secure payment, such as a cashier’s check or a wire transfer, for the purchase price. You then immediately use these funds to pay off the loan with your lender. Some sellers and buyers complete this transaction at the lender’s branch or a bank, allowing the lender to receive the payoff directly and verify funds. It is important to have a clear bill of sale, and the buyer should be aware that the clear title will be provided only after the loan is satisfied and the lien released.
Selling or trading your car to a dealership simplifies the process, as they are accustomed to handling vehicles with existing liens. The dealership evaluates your car and determines its trade-in value or purchase price. They then handle the loan payoff directly with your lender, contacting them for the payoff amount and remitting funds.
The dealership’s offer accounts for the outstanding loan balance. If the car’s value exceeds the loan amount, you receive the positive equity. If the loan balance is higher than the car’s value (negative equity), you pay the difference to the dealership to complete the transaction.
Finalizing Payment and Ownership Transfer
The final steps involve the loan payoff and legal transfer of vehicle ownership. If you are responsible for the payoff, send funds directly to your lender via certified check, wire transfer, or an online payment portal. Confirm receipt of the payment and ensure it is applied to the correct account to avoid delays.
Upon receiving the full payoff amount, your lender initiates the lien release process. Lenders usually process lien releases within a few business days, though the exact timeframe can vary. After the lien is released, the clear title will be mailed to you. The mailing of the paper title can take several weeks, depending on the lender and state processing times.
With the clear title, formally transfer ownership to the new owner by signing over the title certificate. Accurately complete sections on the title for the buyer’s name, sale date, and odometer reading. Submit a Notice of Sale or Release of Liability form to your state’s Department of Motor Vehicles (DMV) or equivalent agency. This informs the DMV you are no longer the vehicle’s owner, protecting you from liability for incidents after the sale.
Remove your license plates before the buyer takes possession. The buyer is then responsible for registering the vehicle and obtaining new license plates.