Personal Loans

How To Sell A Vehicle With A Loan

By David Krug David Krug is the CEO & President of Bankovia. He's a lifelong expat who has lived in the Philippines, Mexico, Thailand, and Colombia. When he's not reading about cryptocurrencies, he's researching the latest personal finance software. 8 minute read

How To Sell A Vehicle With A Loan? It’s more difficult to sell a car when you have a loan, but it is possible. Buying a new or used automobile necessitates selling your current vehicle first. If you have a car loan, things might get a little more tricky. As a result, you can’t merely sell your car without first resolving the legal claim of the lender.

The good news, selling a car with a loan is not impossible, despite the fact that the process might be difficult. Transferring ownership is made simpler in some cases than in others. What you need to know is provided here.

What to do first when trying to sell a car that you owe money on

As a first step, acquire information about your present vehicle loan’s payback date and amount. Before you can sell your automobile and transfer the title to a new owner, you’ll have to figure out how much you still owe on your loan.

You see, the legal ownership of a vehicle is determined by the car’s title. You have a lien on your vehicle when you have a car loan because the lender has a claim on it. As long as you have a debt in your name, the lender will have the title. Once the loan is paid in full, the lien is lifted, and the lender provides the owner the title to complete a title transfer, a new buyer cannot acquire possession of the vehicle.

You’ll be able to transfer a clear title to the new owner if you know how much money you owe on the loan and what the payback amount is.

With an online account or phone call, you should have easy access to your car loan’s balance information. To find out who your lender is and what your most current outstanding debt is, you may check your credit report to see if your car loan appears there as well.

Find out how much your automobile is worth.

A preliminary step in selling an automobile with an outstanding loan is to do some research on its market worth. Having an idea of the worth of your car is essential to determining how much to market it for and how much to bargain with a possible buyer.

The importance of this cannot be overstated. You’re considered “upside-down” on your loan if you can’t recoup the total amount you owe on the vehicle. Prior to the sale, you’d have to come up with the additional funds needed to pay off your debt in full. For example, if you owe $10,000 and your automobile sells for just $9,000, you’ll be responsible for the extra $1,000.

You can tell whether you’re in trouble if you know how much your automobile is worth and how much you still owe on your loan. Consider delaying selling your automobile until your car loan is paid in full or come up with a strategy to get the additional funds you will need.

The Kelley Blue Book, AutoTrader, and Edmunds are just a few of the numerous internet resources you may use to determine the worth of your vehicle. Selling your automobile to a private party rather than a dealership may frequently net you a higher profit. For most websites, you can receive a price estimate for either choice.

5 different options When Selling a Car with a loan

There are five distinct ways to sell using a loan. The ideal option for you may be determined by a number of factors, including the worth of your vehicle, the amount of debt you still owe, your tolerance for the inconvenience, and your degree of confidence in handling the title transfer process on your own.

1. Private sale with positive equity

Consider a private sale if you can sell your automobile for more money than you owe on the loan. When selling to an individual buyer, the buyer will give you at least enough money to repay your loan in full, and you’ll return the money to your lender with the remaining earnings.

With a physical branch of any bank or credit union, this process should be quite simple for those who took out a car loan through a dealer. With the help of the buyer and the lender, you may schedule a time to meet and transfer ownership of the car. All of the money that you owe to your lender will be taken out of that sale, and that money will be given to that lender as well.

In the event that your lender does not have a physical facility, the process will have to be handled by mail, making it more difficult. You’ll obtain the buyer’s payment, mail it to the lender, and the lender will mail the new owner’s automobile title. After repaying the loan in full, if you have any money left over, you can keep it.

2. Private sale with negative equity

Negative equity in a private sale complicates things. In the case of negative equity, you owe more on the car than it’s actually worth. Potential purchasers won’t be able to pay off your debt completely if you’re underwater.

The lender will want additional funds if the car’s worth isn’t adequate to cover the loan payment. And until you accomplish so, the lender will not release the automobile title to you.
Most purchasers will be apprehensive of purchasing a vehicle from you since you cannot transfer the title to them. A similar method might be followed if you have the additional funds accessible immediately. In order to transfer ownership of the property, you’ll meet with the lender in their office, hand over the money to pay off the loan in full, and the lender will transfer the title. 

3. Trade-in at a dealership

Customers who trade in their old automobile for a newer one are better served by dealerships. As soon as you trade-in your car, the dealership will work with your lender to transfer the title so you don’t have to.

You may expect your car to be appraised first at the dealership, and you’ll be told an offer price. Your loan debt will be paid in full and you’ll receive a credit against the cost of your new automobile for any additional funds you have over and above what is necessary to repay your balance.

Your new vehicle plus the outstanding sum on your current vehicle’s loan may be covered by taking out a bigger auto loan. In certain cases, it may not be possible to combine a current auto loan with an old one, since it relies on your credit and income. In addition, it will significantly raise the cost of repaying your new loan. That said, if you have to buy a new automobile but are in default on your present loan, this can be a possibility for you.

Dealers advertise that they’ll pay off outstanding auto loan sums for clients with negative equity in some situations, although this is rare. However, you should be aware that they aren’t just handing you free money. In most cases, they’ll increase the amount of your loan without notifying you.

When you buy a car from a dealership, they can handle the paperwork involved in obtaining the vehicle’s title. The Department of Motor Vehicles (DMV) may assist you in registering your vehicle and verifying that you have the minimum insurance needed by law. In fact, many car dealerships insist on seeing evidence of insurance before you can drive off in your new ride. Before you visit a dealership, do some research to get the greatest vehicle insurance policy.

There are several drawbacks, though, to selling your automobile to a dealer. Due to the fact that they have to resell the vehicle, dealers often pay less than individual purchasers.

4. Trade-in at online car buying site

The process of selling your automobile to an online car buyer is nearly identical to the process of selling it to a dealership. The car-buying firm will negotiate with the lender to obtain the title.

After the loan is paid in full, you can apply any remaining equity toward the purchase of a new car. And you may be able to incorporate any negative equity you have into a new loan.
Cashier’s check or certified check may be required to cover the difference between the car-buying site’s offer and the amount owed. In this case, you’d provide the buyer with this information, and they’d pay the loan in full and take the vehicle’s title.

5. Pay it off before you sell

A final alternative is to hold onto the automobile and wait until the loan is paid in full before selling it if none of these possibilities pique your interest. The downside is that this may not be the best option if you are anxious to purchase a new car and owe money on your present loan. However, this can have some important advantages.

Prepayment penalties will not be an issue if you decide to pay off your loan early if you follow this strategy. Because there is no complicated title transfer involved, you won’t have to worry about that either. When you find a buyer, you’ll be able to transfer the car’s clean title to the new owner since you’ll wait until you purchase the vehicle in full.

There are some situations where you may buy a new automobile with no money down using the funds from the sale of your old vehicle (plus any additional savings, if necessary). 

Because you won’t have to pay a monthly payment and you won’t owe interest on the vehicle, saving for a car instead of borrowing can save you money in the long run.
Since you won’t be burdened by debt, you’ll be in a better position to haggle on the price of a car.

Can you sell a financed car?

You may be able to sell a financed vehicle. However, before the new owner can acquire the title and become the legal owner of the vehicle, you must make arrangements to pay off your loan in full.

Easy if you can sell your car for enough to pay off your debt. It is possible for the buyer (a private individual or dealer) to pay the lender, which delivers the car’s title and allows for the transfer of ownership, right away.

If you owe more on your automobile than it’s worth, you may need to pay off your loan or pay the difference between what your car is worth and what you owe before you can go forward. Dealers and car-buying websites may enable you to carry over the remaining balance of your old loan into your new one in some situations. Loan payments might become prohibitively expensive as a result.

Selling a car that you owe money on might hurt your credit score.

After selling your automobile, you’ll have to pay back the loan. Because a vehicle loan is one of the few installment loans that many individuals have on their credit report, doing so might harm your credit score. In contrast to a credit card with a revolving credit line, an installment loan has a fixed amount and fixed monthly payments. As a result of paying off and closing a car loan, you may no longer be able to meet the lender’s recommended mix of loans.

After selling your previous automobile, you can retain several forms of credit by taking out a new car loan. This new account, on the other hand, might reduce your average age of credit, which could affect your credit score. lenders favor lengthier credit histories for this reason.

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