How to Sell a Car You’re Financing

Selling a car you are still financing is a common scenario many car owners face. While an outstanding loan adds financial and administrative steps, navigating this journey is manageable. This guide will walk you through understanding your financial standing, completing the sale, and ensuring the loan is properly settled.

Assessing Your Car’s Financial Standing

Begin by obtaining an official payoff amount from your lienholder. The payoff amount is the total sum required to satisfy your loan, including accrued interest, as of a specific future date. This figure is often different from your current loan balance because interest continues to accrue daily. Request this information by contacting your lender’s customer service, checking their online portal, or requesting a formal payoff letter.

Once you have the payoff amount, you can determine your car’s equity. Equity refers to the difference between your car’s current market value and the outstanding loan balance. Positive equity means the car’s market value exceeds the payoff amount, allowing you to cover the loan and potentially profit. Conversely, negative equity (also known as being “upside down” or “underwater”) occurs when the payoff amount is greater than the car’s market value. This situation might require you to pay the difference out of pocket at the time of sale.

Consult reputable online valuation tools to ascertain your car’s market value. Websites like Kelley Blue Book, Edmunds, and NADA Guides provide estimated values based on your car’s make, model, year, mileage, condition, and features. These platforms offer different values for trade-in, private party sales, and dealer retail, with private party sales often yielding a higher return. Understanding this market value helps set a realistic selling price and assess your equity position.

Getting Ready to Sell

With a clear financial picture, prepare your car and gather necessary documentation. Physical preparation attracts buyers and can increase your car’s value. This includes cleaning the interior and exterior, addressing minor repairs, and organizing maintenance records.

Beyond the vehicle, prepare all essential documents for a smooth transaction. You will need your government-issued photo identification, such as a driver’s license. Have your loan account information available, including the account number and the lienholder’s contact details, as the lienholder holds the vehicle’s title until the loan is satisfied. Your current vehicle registration and maintenance records also provide transparency and value to a prospective buyer. Having a generic bill of sale template on hand can help expedite the final paperwork.

You have two primary options for selling: to a private party or trading in/selling to a dealership. Selling to a private party generally offers a higher sale price, but requires you to manage all transaction aspects, including the loan payoff. Conversely, selling or trading to a dealership simplifies the process, as the dealership often handles the loan payoff directly, but you may receive a lower offer. Each method has distinct implications for how the outstanding loan will be settled.

Completing the Sale and Loan Payoff

The final phase involves executing the sale, paying off the loan, and transferring ownership. When a buyer agrees to purchase your car, payment handling depends on your equity position. If you have positive equity, the buyer pays the full purchase price, and you use a portion to pay off your loan, retaining any remaining funds. If you have negative equity, the buyer pays the market value, and you are responsible for paying the difference between the sale price and the payoff amount directly to the lienholder. In some cases, if the buyer obtains a loan, their lender might send funds directly to your lienholder to settle your outstanding balance.

A bill of sale should be completed and signed by both you and the buyer, detailing the vehicle information, purchase price, and date of sale. Federal law requires odometer disclosure at the time of sale, often noted on the title or a separate form. After receiving payment, promptly pay off your outstanding loan with the lienholder. This involves sending the official payoff amount via a certified check or wire transfer to ensure timely receipt. Lenders release the lien within a few business days to a couple of weeks after receiving the full payoff.

Once the loan is paid in full, the lienholder will release their claim on the vehicle, a necessary step for transferring ownership. In some states, the lienholder will send the title directly to you or the Department of Motor Vehicles (DMV) after the loan is satisfied. In other states, you may receive a lien release document that you then take to the DMV to obtain a clear title.

This process can take anywhere from two to six weeks. After you have the clear title, you will sign it over to the new owner. Notify your state’s DMV or equivalent agency about the sale by submitting a Notice of Transfer and Release of Liability. This step protects you from liability for any incidents, tickets, or violations involving the vehicle after the sale date. Finally, remove your license plates and cancel your car insurance policy once the sale is complete and ownership has been transferred.