There are many reasons you may decide to sell your car before it’s paid off: The loan payments are too high, the car hasn’t lived up to its test drive, or it simply doesn’t meet your needs anymore. It is possible to sell a car even if you still owe money on the loan. This merely adds a step to the sales transaction: closing the loan with your lender.
Related: How to Transfer Ownership When You Sell Your Car
Your best course of action will depend on how you plan to sell the car and whether you have positive or negative equity in the vehicle. Although negative equity (owing more on the vehicle loan than it’s worth) can pose a challenge, the recent rise in used-car values may help some sellers avoid this scenario.
If you’re wondering where to start with selling your vehicle and getting your payments squared away, here’s what to do:
- First, estimate the current value of the vehicle. Variables that affect your car’s value include its mileage, condition, accident history and market conditions. The recent spike in used-car prices means your vehicle may be worth more than you think; using vehicle valuation tools and browsing similar used-car listings in your area will help you identify your vehicle’s current market value.
- Next, check how much money you still owe on the loan to determine if you have positive or negative equity in the vehicle. Confirm your payoff balance online or call your lender. If the vehicle’s value is higher than the payoff amount, you have positive equity in the car, and you’ll get the difference back as a check from the lender. However, you may find the car’s payoff amount is higher than its value; in this scenario, you have negative equity and will need to pay the difference when you close the loan and sell the car.
- When you’re ready to sell, call your lending institution to determine the best way to close out the car loan. At the same time, ask about obtaining a lien release, which states that there are no outstanding loan obligations on your car.
- If you owe more on your loan than you can readily pay prior to a sale, it’s possible to close the loan and transfer ownership at the same time.
- When selling to a private party, you may want to conduct the sale at the lien-holding institution. Here, you can pay off the loan balance with the sale proceeds and immediately sign over the title to the new owner. Call the lending institution beforehand to facilitate this transaction. If the lien holder is out of state, obtain a temporary operating permit from your state’s department of motor vehicles. Once the loan is paid off, you can send the signed title to the new owner. While this option may involve more faith by the buyer, remind them that it’s also in your best interest to transfer the title as soon as possible to eliminate personal liability.
- Selling to a dealer or trading in your vehicle when you still owe money is an easier way to offload it than selling to a private party. Most dealers will handle the transaction and work with your lender to close out the loan. When trading in with positive equity, the difference can be applied to the new car’s price or you’ll receive a check for the difference. If you have negative equity in the vehicle, you’ll likely have two options: Pay the difference or roll the negative equity into your new car loan. Take caution with the latter route since it can increase interest payments and the length of the loan.
- Leased cars represent a different situation. If you want to get out of your current lease by transferring it to a new owner, we recommend using a lease-transfer service.
More From Cars.com:
- What Affects My Car’s Value?
- Selling to a Dealer: Taxes and Other Considerations
- Can You Trade in or Sell a Car With a Loan?
- Now Is a Good Time to Sell Your Extra Used Car; Here’s Why
- How Does Selling to a Dealer Work?