It’s not tricky to sell a car with an existing loan – it just takes a few more steps and may take a bit longer. If you plan to sell your car to a private buyer or trade it in at a dealership, you’ll need to pay off the loan before the lender transfers the title. Therefore, negotiating the best price for your used car is necessary if you want to get close to paying off the debt. Read the article to know how to do that efficiently.
Selling a car with an existing loan
Are you still wondering if you can sell a car with an existing loan? Certainly, you can!
Whether you intend to sell your car to a private party or exchange it via a dealer, you’ll need an estimate of how much you currently owe on your loan. Also, whether it’s more or less than the amount you can receive by selling your car and how your lender expects the transaction.
Your alternatives, with the assistance of financing institutions and dealerships, as well as the state’s department of motor vehicles (DMV), include:
- Paying off the balance of the loan.
- Selling your car to a used car dealer.
- Selling your car via a private transaction.
- Exchanging your car at a new-car dealership.
What to do before selling a car with an existing loan?
Selling an automobile on which you owe money is legal, and you can do so at any time throughout your loan. It’s not always a good idea to sell a vehicle before it’s paid off, so assess your situation to see if you really want to get rid of the debt. The steps below can help you decide if now is the right time to sell your car:
Estimate your car’s worth
Use a vehicle valuation site such as Kelley Blue Book or Edmunds to figure out how much your car is worth in today’s market. Other used-car buyers, such as Carvana and CarMax, are still useful in this process.
These sites will request basic information regarding your vehicle. Such as the year, make, model, overall condition, and ZIP code. In order to generate a valuation, some services will also need the license plate or vehicle identifying number (VIN).
When assessing the condition, be truthful. You may have become accustomed to overlooking imperfections in your vehicles, such as a rip in the seat or a little damage in the fender. But the buyer will see these flaws and may value the vehicle lower than you think.
Calculate your payoff amount
Discuss with your lender about a payback amount that is likely to differ from your existing loan balance. The payoff amount includes the loan total, interest up to a certain date, and applicable fees. Depending on the lender, payoff amounts are normally valid for ten days.
You should be able to obtain payoff information through your lender’s website or by calling them. Before you pay off your auto loan, verify the Truth in Lending Act statement on your loan contract or ask your lender if there is a prepayment penalty.
Find your car’s equity status
Once you know the worth of your car and the amount owed, you may calculate your equity in the vehicle. It is the gap between the car’s value and the payout amount. There are two choices: positive equity and negative equity.
Positive equity allows you to sell it and still have money left over for a down payment on a new car, but negative equity leaves you with a loan balance after the sale. If you don’t have positive equity in your vehicle, you should think about increasing your installments and selling it once your equity matches or exceeds the payback quotation.
Consult with your lender
It’s always advised to check with your lender before selling your car for sale. To confirm the sale, you’ll need to know your car’s equity status and the payoff criteria.
Selling with positive equity
It’s best if you can sell your car with positive equity. It signifies that the sales price or trade-in value is greater than the loan balance. So, you could either walk away with some cash in your pocket or put the positive equity into a new auto loan.
If you purchase from a dealer, they should pay off the debt and proceed with title transfer. Else if you are selling to a private party, you must pay the loan balance yourself. If you have good credit, you might utilize a personal loan to pay off the car loan before the sale, allowing you to keep the title.
When the auto lender is not involved, and you have a clear title, selling your car is significantly easier. This procedure can also be used to potentially remove a cosigner from an auto loan in order to simplify the transaction.
Depending on the state where the car is registered, you will need to engage with the DMV and the lender to transfer the title to the new owner. If you intend to sell privately, make a bill of sale and a release of liabilities.
Selling with negative equity
The process becomes more challenging when you’re underwater or upside-down on your car loan. You will not only have to pay the lender the whole amount of the selling proceeds. But you will also have to pay more money to compensate for the negative equity amount.
Rolling over your old balance into a new loan will result in a larger, more expensive loan because you will be borrowing more than the cost of your new car. When you have negative equity, you have various alternatives for selling the car and paying off the loan in full, like:
- Pay the difference out on your own.
- Consult your lender about your alternatives.
- Wait before selling.
- Sell your car on your own.
- Transfer your negative equity to your next car loan.
Does a private sale impact your loan?
Before the pandemic, the best price for a used car was frequently obtained through private transactions. However, adopting this path means you and the buyer will have to complete all of the legal work on your own. That is why it is critical to obtain the current payoff amount and the documentation required by the lender, as well as to inquire about how the lender intends to conduct the transaction.
Remember that before the loan officer can sign over the title to the buyer, the lender must receive the full payback amount. If the case of positive equity, the lender will pay you the difference. If the case of negative equity, you must pay the difference to the lender before the agent hands over the title to your buyer.
How to privately sell a car with a loan
When you opt for private sales, you can negotiate a lower price. On the downside, you’ll have to manage all of the documentation yourself. If you’re planning a private sale, you should:
Assess your car’s equity
The private selling process is vastly different regardless of having positive or negative equity in your vehicle. If you have positive equity, you can have your buyer pay off your loan immediately. But this is not allowed if you are unable to match the payback amount. When dealing with a private entity, there is usually greater room for negotiation. Because they are not determining what they will pay based on trade-in vs. retail values.
Eliminate the title
When negotiating with a buyer, be transparent and upfront about your loan situation to avoid complications. If you want to sell privately, consider the following methods for clearing the vehicle title.
- Pay down the loan as soon as possible.
- Allow the buyer to directly pay your lender.
- Give the loan to the buyer.
- Apply for a short-term unsecured personal loan.
Make arrangements for a secure transaction
It’s easy to get manipulated in a private sale, so make sure you protect yourself. The easiest approach to ensure the transaction is secure is to utilize a bank as a middleman or an escrow service. Make sure not to sign over the automobile until the money has cleared.
Transfer the buyer’s title
Once you’ve finalized the price, you must prepare a bill of sale and sign the title so they may transfer ownership and register the vehicle. To avoid liability, you should also submit warranty documents, maintenance records, a car history report, and an odometer disclosure. After you’ve submitted these forms, everything else is up to the buyer.
What if the bank wants the payoff before the sale?
When the bank requires payment before the sales, you have a few options, like:
Applying for a personal loan
You can secure a personal loan to repay the auto lender and regain custody of the title. You can then sell the car and use the earnings to repay the personal loan. If you do not pay off the entire debt, you will be required to continue making payments on the personal loan until it is paid off. Remember that there will be fees involved with obtaining the personal loan; compare the cost of the fees to the cost of your other financing alternatives.
Using up your savings
Use your savings to pay off the remaining loan balance. Of course, you’ll need enough money on hand to cover the difference.
Refinancing your current auto loan
To make the payments easier to handle, you might cut the interest rate or lengthen the loan duration. Refinancing to a lower APR could help you create equity faster, allowing you to move into positive equity or have less negative equity.
If you want to sell your car, make sure you’re not bringing yourself more hassle than it’s worth. The timing is critical when selling a vehicle with a loan. If you have positive equity and your credit score has increased since you took out the loan, you should have little trouble qualifying for a new loan. In the end, it all depends on your decision.