How to Sell Your Car When You Still Have a Loan

If you have a car loan, it is possible to sell the vehicle. However, there are a few additional steps.

Grant Feek is the managing director of Cox Automotive's private seller exchange. He says that when there is a loan, the lender holds the title and owns the car. You must be the record owner to sell the vehicle, which means you have to pay off the loan and get the title transferred.

You'll need the value of your car and the amount you owe to repay it. The current market value of your vehicle will help you determine the amount of equity you have. You'll need to decide if you want to sell to a private buyer or to a dealer.

Here are some steps for selling a vehicle with a loan.

First, you need to know the value of your car.

Matt Dundas is the senior director of finance at Carvana. He says that when you are preparing to sell your vehicle, it is a good idea first to get a realistic estimation of its value based on your car's condition, mileage, and market conditions.

You can find many online resources to help you, including Edmunds and Kelley Blue Book. You'll need information about your vehicle, including the model, make, year, mileage, general condition and your ZIP code, to receive an estimate on its value. Some sites may ask for the vehicle identification number in order to provide a more accurate estimation.

Feek suggests that it can be useful to look at listings on sites where people sell their used vehicles to find similar cars. Feek says that just because a car is listed at a particular price does not mean it will sell for that amount. However, this can be a great way to see what the average market pricing is.

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The payoff amount is the total of your loan, including any fees and interest. Contact your lender for a 10-day statement. This is a document that shows your payoff plus 10 days of interest.

Dundas says that most lenders allow you to download a statement or request it be mailed to you. Dundas says that Carvana will ask for a copy if you are selling a vehicle with a lien in order to finalize the trade-in.

Calling your lender can help you to create some breathing space in the schedule of repayment. Steven Gordon Sr. is senior director of finance at Way.com. He says that by speaking with a person you can customize the payoff schedule, for example, a 15 to 30-day payment. Ask the supervisor about the procedure for canceling the extended warranty or gap coverage with your lender. This will allow you to receive the remainder of the original cost back from the lender.

Gordon advises that you take note of who provided you with the quote for the payoff, and if the loan can be paid electronically. He says that the quicker you pay the lender off, the sooner you'll get your title and money.

Step Three: Determine Your Equity

You can calculate your equity by comparing the value of your car and your total payoff.

Dundas says that equity is the value left after you pay off your loan. You can calculate it by subtracting the value of your car from your payoff quote.

It is possible to sell a vehicle with negative or positive equity. However, the process may be different.

Sell with Positive Equity

Your car will be worth more than its payoff if you have a positive equity. Gordon explains that there are two options to sell a vehicle with a loan. The buyer can pay the loan off with two checks. One check will cover the balance of the loan and the other the equity left in the vehicle.

The buyer can also give the lender the full amount of the vehicle. Gordon says that your lender will then send you a cheque for the amount above the loan balance.

Selling with Negative Equity

Negative equity, also known as being upside down, is when you owe more on your vehicle than its current market value. Dundas says that you will need to pay the lender the additional amount when you sell the vehicle or you can roll it into your loan for your next car.

If you roll your old balance into a loan, you will end up with a larger, more expensive loan as you are borrowing more than you need to buy your new vehicle. The Consumer Financial Protection Bureau recommends that if you do so, you contact your current lender in order to find out when your loan is paid off.

Step Four: Selling to a Dealer or Private Party

You can sell your car either to a private person or to a dealer. The dealer option is easier, but you might get a higher price if your car is sold to a private person.

Sell to a Dealer

The dealer will handle the payment process when you trade in your car. Gordon says that the dealer will call the lender, appraise the vehicle, and then get the payoff amount.

He says that if there is equity in the vehicle, it can be used as a downpayment. You can choose to use some, all or none. "In most cases, equity is applied towards the price of the vehicle and a balance is due."

Dealers can assist you in negative equity situations by allowing you to roll over your outstanding loan balance into your new loan.

You may also be able to save on sales tax with your next purchase if you work with a dealer. Dundas says that in many states the value of the trade-in you have can be deducted from the cost of the next vehicle when calculating the sales tax due. This can save hundreds or even thousands of dollars.

Private Parties: Selling to them

You may make more money by selling privately, but it can be a more difficult process.

Payoff will take at least a couple of days, and sometimes much longer. Feek explains that unless you are a trusted friend of the seller, he is unlikely to be willing to pay the full amount for the vehicle if you do not have the title. You may have to wait weeks for your title after the car has been paid.

Be sure to check the tax implications before you decide on a sales strategy. This will save you from a nasty surprise.

Feek says that depending on the way your loan was structured, you might have paid your taxes up front, or they may be rolled into your payment each month. You'll need to check with your lender, and the Department of Motor Vehicles in your state (if applicable), whether you will owe taxes after your car is titled.

He says that if you find out you'll owe tax, you should ask whether there is "a grace period" during which taxes can be avoided if you transfer the car to a buyer within a specified timeframe.

Doing your research is the key to successfully selling a vehicle while you have a loan. Gordon advises, "Always ask lots of questions and be very careful."