Take These Steps Before Selling A Financed Car
Follow these steps before selling a car with a lien:
Consider these factors before you decide to sell a financed car
Here are three factors to think about before selling a car that has a lien on it:
- Depreciation. The value of your car can drop considerably in a few short years, so consider depreciation and how much money you can reasonably expect to get from selling your financed car.
- Trust. Most people are wary about buying a car with money owed on it.
- Risk of going underwater. If youre working with a dealership and want a car worth more than the value of your current vehicle, you might roll your old balance into a new loan making it easy for your car loan to become upside down.
Selling a car with positive vs. negative equity
Selling A Car With Negative Equity To A Private Party
In a private party sale, the buyer will pay the sale amount directly to the lender, and youâll pay the remaining loan balance to the lender. Then you and the loan servicer will sign the title over to the buyer. If you have enough savings or can get an unsecured loan to cover the entire loan payoff, you can get the title transferred into your name ahead of time to simplify the sale process.
How To Calculate The Cost Of Trading A Car With A Loan Balance
Having positive equity on your current loan, that is, you owe less than the car is worth, makes it easier to trade in than when you have negative equity.
If the value of the car is more than what you owe, the dealership will accept the trade-in and take on the debt owed for the car knowing that they can still sell it for a profit, said Jake McKenzie, an analyst with Auto Accessories Garage.
But if you owe more than the car is worth, a dealership may still allow a trade-in, but what you owe on the vehicle will be tacked on to the price of your new car and effectively transferred to the new loan, McKenzie said.
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Does My Car Loan Disappear If I Trade In My Car
Your car loan doesn’t disappear if you trade in your car. However, the trade-in value of your car becomes credit towards your loan. This credit might cover the whole balance. If it doesn’t, your dealer will roll over your loan, combining the deficit with the amount owing on your new car. Consolidating what you owe into a single new loan helps you manage your payments better.
Can You Sell A Car With An Existing Loan
Yes, there are a few ways to sell a car with an existing loan. Keep in mind that if the sales price is less than your loan balance, you will have to pay the remaining balance on the loan. With help from lending institutions and dealerships, along with the states department of motor vehicles , your options include some of the following:
- Pay off the remaining loan
- Sell your vehicle to a used-car dealer
- Sell the vehicle in a private-party transaction
- Trade the vehicle in at a new-car dealership
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How To Sell A Car With Negative Equity
If you owe more on your car than it is worth, you have negative equity. You can still sell a car with negative equity, but itâs more challenging. If youâre upside down on a car loan, youâre responsible for paying the difference between the sale price and the loanâs payoff balance. This is true whether you sell the vehicle to a private party or a dealer. If you donât have enough savings to cover that difference but your credit score is good, you might be able to get a loan from your bank or credit union to cover it. Unsecured loans tend to have higher interest rates than auto loans, so youâll want to pay off this loan as soon as possible after the sale.
If The Lender Is Not Paid Off You Will Never Get The Titleever
If the lender is not satisfied, you’ll never get the title to the car no matter what. The lender does not care if you bought the car and paid money to the seller, the lender never got their money, and they hold the purse strings, the title strings, and your sanity strings.
Be sure to download our free Used Car Bill Of Sale Spreadsheet from our free download section, to use as your invoice, and for DMV supporting paperwork.
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Ways To Pay Off Your Car Loan Before Selling It Privately
Thinking of selling your car to a private party? Here are three options for paying off your current loan:
1. Sell your car and use the money to pay off the loan
This is the easiest option when moneys tight, but you need to earn the trust of your buyer. Follow these two tips:
- Be direct and honest. Let the buyer know you owe money on the car and that youll pay off the loan in full immediately after the transaction.
- Figure out if youll make a profit or not. Get an idea of your cars market value and how much itll cost to repay the loan in full including any early repayment fees and other costs. Thisll give you an idea if youll make or lose money from the sale.
This option might not be the best choice if your car loan is upside down, or when your cars value is worth more than its resale value.
2. Refinance your car loan first
Ask yourself these two questions when deciding whether refinancing is right for you:
- Can I find better loan terms? Calculate your savings by weighing the fees and interest rates of a new loan against any additional charges from closing your old loan.
- Will I save money? Determine exactly how much youll save by refinancing your car loan. Check and double-check it before switching loans.
Compare auto refinancing offers
3. Use savings, another loan or a credit card to pay it off first
Can You Sell A Car Without A Title
A title serves as proof of ownership, and in most cases, you can’t sell a vehicle without proof of ownership. If your title was lost, damaged, or stolen, you should replace it. If the vehicle is abandoned, contact your state’s department of motor vehicles to find out how to proceed. Some old vehicles may have a bill of sale rather than a title, which can also be used to sell a vehicle.
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A Receipt For The Buyer
In most cases, you need to provide the buyer with a bill of sale. A bill of sale acts as a receipt for the purchase of the vehicle and provides basic information needed to prove that the sale actually took place. You can download a bill of sale template on the Internet, or you can create your own. Whichever route you choose, just make sure the bill of sale contains the following information:
- Date of sale
- Selling price for the vehicle
- Odometer mileage readings
In most cases, the certificate of title and a bill of sale are the only documents you need to sell your vehicle to a private party. If you’re selling a vehicle to a dealership, the dealer may have other forms they require you to fill out before buying your car. Most states only require that you have the above documents when transacting the sale of a used vehicle.
Alternative To A Trade
Trading in your car at the dealership isnt your only option. You can also sell your car to a private buyer, though you may need to let your lender know first. While it may take longer, youll likely get more money for your car in a private sale than with a dealer trade-in, which could help offset any negative equity.
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Sell It In A Private Sale
Private sales can be handled in two ways. First, the buyer can pay the total sale amount to the loan servicer. Then the servicer pays you whateverâs left from the sale proceeds after the loan is paid off. Second, the buyer can pay your lender the balance you owe on the loan then pay you the remainder of the sale price. Using our previous example, if youâre able to sell the car for its $10,000 value, the buyer would pay the bank the $8,000 you still owe on the loan and give you the remaining $2,000.
In either case, you and the lender then sign the title over to the new owner. Then the new owner needs to go to the stateâs department of motor vehicles to get a new registration and title.
You can streamline the process by paying off the loan before the sale so that you have the car title in hand on the sale date. If you have good credit, you might be able to get a personal loan to pay off your auto loan before the sale. But if you go this route, youâll want to pay off the personal loan as soon as possible so you donât have to pay interest on the loan.
Work Something Out With The Lender
If you still want to surrender the car, you can try to work something out with the creditor, like negotiating a reduction or waiver of the loan balance as a condition of returning the car. After all, you’re saving the creditor the time and costs of a repossession and auction .
Potential Tax Consequences of Forgiven Debt
If the lender forgives $600 or more, you’ll get a Form 1099-C or 1099-A, and the IRS will expect you to report the forgiven balance as income on your tax return unless you qualify for an exception or exclusion.
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Know What Your Car Is Worth
Next, youll need to research the current value of your vehicle. With the general supply-chain issues due to the Covid-19 pandemic, the industry is experiencing a scarcity of new carswhich means the market is hot for both new and used vehicles.
You can easily find out the present value of your car by visiting a vehicle valuation site like Edmunds, Kelley Blue Book or Cars.com. Youll need to know the year, make, model, your zip code and overall condition of the vehicle. Vehicles less than three years old hold greater value, but even vehicles up to five years old are in demand.
How To Sell A Car With A Loan: What To Do First
The first step to figuring out how to sell a car with a loan is to gather payoff information about your current auto loan. You’ll need to find out the outstanding loan amount because the balance will need to be paid off in full before you can transfer your car’s title to a new owner.
See, the title determines who has a legal ownership interest in the car. When you have a car loan, the lender has a lien on the vehicle because they have a claim to it. The lender typically holds onto the title while you still have a loan. A new buyer can’t take ownership until the lender has been paid in full, the lien has been released, and the lender gives the owner the title so the owner can do a title transfer to the buyer.
You should be able to check the outstanding balance of your auto loan by signing into your loan account online or calling your lender. Your auto loan should also show up on your credit report, so you can find information about who your lender is and what your recent outstanding balance was if you aren’t sure what lender to contact.
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Pay It Off Before You Sell
If none of these options seem attractive to you, you also have another choice keep the car and wait to sell it until you’ve paid off the remaining loan balance. While this may not be the ideal solution if you’re eager to buy a new vehicle and owe a lot of money on your current loan, it can have some significant advantages.
If you take this approach, you won’t have to worry about any prepayment penalties that might apply if you pay off your loan early. You also won’t need to worry about the complexity of a title transfer. Since you’ll wait until you own the car free and clear, you’ll be able to transfer the clean title to the new owner when you find a buyer.
If you’ve paid off your car loan in full before buying a new vehicle, you may also be able to use the proceeds from your sale to buy your new car without a loan. It can really pay off to save for a car instead of borrowing because you’ll eliminate your monthly payment and won’t owe interest on the vehicle.
You’ll also have more flexibility to negotiate car prices with buyers since you won’t have a loan to pay off.
Selling With Positive Equity
Positive equity means you may walk away from the sale with some money! For example, if your car is worth $10,000 and you owe $7,000, you can expect to take home the $3,000 difference.
In a sale to a private party or dealership, you could get the money in one of three ways:
If you trade in your car to a dealership, you could use the positive equity as a down payment on buying another vehicle instead of taking it as cash.
Because its easier to sell a vehicle when you have the title on hand, you may consider buying the car with your savings or a personal loan before you sell it to its next owner. Unsecured personal loans have competitive rates for borrowers with good credit and as soon as you sell the car, you can pay off the loan, meaning you could pay very little in interest and have a free and clear title to show buyers. We recommend this only if you have a high credit score, are confident that the car can sell quickly and are comfortable with making the new payment for a little while in case the car doesnt sell immediately.
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Wrapping Up Legal Matters
The legal side of selling a car is not quite as simple as most people would like it to be. If youre planning to sell your car, get a list of the specific requirements in your state from the Department of Motor Vehicles. And be sure to follow those requirements to the letter.
Some of the documents you should have prepared includes the following:
Also be certain that the registration on the vehicle is current. If it isnt, it can lead to problems after the sale, including the payment of late fees.
Summary Of Steps To Take To Ensure A Smooth Used Car Title Transfer
Here’s a summary of our steps for you to take when buying a used car with an outstanding loan balance:
This should be smooth sailing for you. Good luck out there!
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Pay Off The Loan Partially For Positive Equity
You do not need to pay off the auto loan fully. Instead, you can choose to reduce the debt and get positive equity. It will ensure you receive enough money from the sale to settle the balance with your lender without requiring additional payments from you or the car buyer. This can be a quicker and more effective process if you wish to sell soon or if funds are limited.
What Information Do I Need To Sell A Car With A Loan On It
If youre thinking about selling a financed car, first gather together the following information to help the process go smoothly.
- Payoff amount. This is the amount you need to pay to completely pay off your loan. Besides the outstanding loan amount, you may also have to pay your lender early repayment fees and any administration fees. You can request that your lender send you a document with a full breakdown of the what you have to pay back, including any fees. Keep in mind that some lenders dont allow early repayments depending on the type of loan, like when your car is being used as collateral in a secured loan. So check with your lender before you consider selling your financed car.
- The title transfer process for your lender. Each lender might have a different process for transferring the title to the new buyer if you sell your car privately. You might need to coordinate with the new buyers lender to hand off the loan.
- Your cars current value. Get an estimate of your cars current value by using tools on sites like Canadian Black Book, Auto Trader Canada, and Kijiji Autos to prepare for negotiations with your dealership or private buyer. Or, have it evaluated by an expert.
- Your cars equity. You can calculate this by subtracting the payoff amount from the cars current value. If your car is worth less than the payoff amount, you have negative equity, which can make it difficult to sell with a loan.
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