How to Sell a Car With a Loan Easily
Are you considering selling your car but don’t quite know how to manage the loan attached to it?
Selling a car with outstanding loan payments can be complex and frustrating, but following a few simple steps can make the process simpler and quicker.
Here we will provide a helpful step-by-step guide on understanding your loan agreement and considerations for taking action when selling your vehicle.
Table of Contents
Steps on How to Sell a Car with a Loan
1.) Review the Terms of Your Loan Before Selling
Begin by reviewing your current loan and understand how much you owe money in total, the monthly payments, and any potential fees or penalties associated with early repayment of the loan balance.
By conducting your due diligence and understanding the details of your auto loan, you’ll be more equipped to speak to your current lender about selling your vehicle and navigate the selling process more smoothly. Before listing it for sale, take time to go over your loan agreement.
- Prepayment penalties
- Interest Rate
- Loan Term
- Payoff amount
- Maturity Date
2.) Contact Your Lender You Are Selling Your Car
Once you’ve decided to sell your car while it still has a loan, inform your lender, as they are interested in the sale.
Generally, lenders will have specific instructions on how the borrower can sell a car with a loan. They will guide you through the necessary steps before you list your car for sale and transfer the title to the new owner.
So, connect with your bank or credit union lender and inform them that you are selling your car. Remember to be transparent with your lender when going through the process.
- Confirm the loan payoff amount and any fees
- Ask of the loan’s maturity date
- Understand how to obtain the car title
3.) Calculate the Car’s Value
Start by gathering your car’s information like make, model, year, mileage, and loan balance. Then you can use a vehicle valuation site to estimate your car’s worth.
Note this is an estimated number and not the exact figure you’ll get from your sale, but it can give you a solid starting price for negotiations.
You will want to calculate the positive or negative equity from selling your car. Subtract the vehicle’s estimated market value from the remaining loan balance to determine the equity.
Not only will this helps you set a fair asking price and a better understanding of what your profit is after the sale. You’ll be prepared to negotiate with private buyers and get the most out of the sale.
Positive Equity
Positive equity refers to the value of your car being worth more than the amount remaining on your loan. The seller can use the excess funds to pay the loan and potentially have money left over.
A car with positive equity can use the funds to trade in for a new car, as the extra funds can go towards a new car loan. However, positive equity isn’t always given and can be affected by depreciation and additional fees.
Positive Equity Example:
$10,000 Estimated Car Value – $9,000 Loan Owe = $1,000 Positive Equity
Negative Equity
A negative equity amount refers to the scenario where the remaining loan balance on the car is greater than the car’s current market value. You would still owe on your existing loan as there won’t be enough funds to cover its remaining balance.
Unfortunately, negative equity can be an all-too-common occurrence, especially for those who took out a longer loan term, made a small down payment, or finance a vehicle with a fast depreciation rate.
If you find yourself with negative equity, taking a small personal loan is a last resort option to cover the difference if you cannot find other resources to fund it.
Negative Equity Example:
$10,000 Estimated Car Value – $12,000 Loan Owe = -$2,000 Negative Equity
4.) List Your Car For Sale
By listing your vehicle online, you can reach a wider audience and potentially sell your car for a better price. Research and use a reputable online marketplace to ensure a successful sale.
Additionally, many of these platforms have built-in features that can help you market your vehicle and manage inquiries from potential buyers.
A private party sale will sell your car for the best price than selling to a dealer, but it will be a longer process. As with any online transaction, take safety precautions and be aware of potential scams online.
5.) Negotiate with the Private Buyer and Complete the Sale
After successfully advertising and finding a potential buyer for your car, it’s time to negotiate and finalize the sale.
This step is critical as it will determine how much you’ll receive for selling your car. Be open to hearing what potential buyers offer, and be prepared to walk away if any deal does not suit you.
Discuss the sale terms with the buyer, such as payment options, transfer of ownership, and any other relevant information that can affect the sale.
Once both parties have agreed on the terms, complete the private sale by signing over the car’s title to the buyer and exchanging payment. Finally, notify your lender of the car’s sale and settle any outstanding balances to avoid complications in the future.
6.) Transfer Car Title
Once you have paid off the loan on your car and have an official release statement from the lender, it’s time to transfer the car title.
As the seller, you are responsible for providing the buyer with a clean title free of any liens or unpaid car loans. The seller may still be legally responsible for the vehicle without a proper transfer.
Transferring a car title will depend on your state’s regulations. Typically, this involves filling out and submitting a Title Transfer form to your local Department of Motor Vehicles (DMV).
Check all information is correct on the form, such as names of buyer and seller as well as lien holders. Once complete, the DMV will process the transfer and issue a new car title to its new owner.
FAQs
Is It a Good Idea to Sell a Financed Car?
Depending on different factors, selling a financed car can be good or bad. If you need funds to reduce your debt, selling your financed car could help you get extra cash to settle your loan balance.
However, an early payoff could incur fees; it can take time and effort to list your car for sale, find potential buyers, and discuss terms with your lender. It’s advisable to consult with your lender about your financial situation and loan terms before deciding to sell your financed car.
Can Someone Take Over My Car Loan?
Yes, someone else can take over your car loan. The process is called an auto loan assumption or auto loan transfer, and it involves transferring the loan to a new borrower who will take over the remaining payments.
However, only some lenders allow for auto loan assumptions, as they base the loan on the borrower’s creditworthiness rather than a new borrower. Confirm with your lender if it is an option.
If your lender allows a new borrower, they must qualify for the loan based on their income and credit score. Additionally, there can be fees and requirements that may come with the loan transfer, work closely with your lender to understand the process and any potential costs.
Does Selling a Financed Car Hurt Your Credit?
Paying off the loan will not damage your credit. However, other factors may impact your credit score.
If you’re missing payments, it will significantly lower your credit score. While using a high credit utilization or paying off a loan prepayment will have a minor effect in the short term.
The majority impact on your credit score is the length of your credit history and on-time payments. Closing an account, such as a car loan, could shorten it. If you can sell your financed car and repay your loan in full, your credit score should remain unaffected.
Closing Thoughts
Selling your car with a loan can take time and effort. However, with patience, research, and understanding of the terms of your loan, you can complete the selling process successfully—and hopefully, turn that car into some extra cash!
With this step-by-step guide, you can take the stress away from selling a financed car and find financial stability. Review your finances, loan agreements, and understand the process of selling a car with a loan.
That way, you’re informed and prepared when it comes time to transfer the title. Ready to get started? Review your loan details today and start selling your car. Check here for the best places to sell your car online.
