How to Sell a Car with Loan
If you're thinking about getting behind the wheel of a new or used car, selling or trading in your current set of wheels is an easy way to make a little bit of space in your garage. Although, how do you sell a car with an outstanding loan?
Selling a vehicle with an active loan is simple. All you need is a bit of information and a few tips for a seamless selling experience.
Here are some helpful tips for selling a car with a loan.
Here are our tips for how to sell a car with a loan:
- Calculate the Payoff Amount
- Determine the Value of Your Current Car
- Option: Trading in a Car with a Loan
1. Calculate the Payoff Amount
Before you can sell your vehicle, you'll need to pay off the loan. To do that, you'll need to know the payoff amount or how much it'll cost to eliminate your debt. The payoff amount is typically different from the balance that's listed on your loan statement, so you'll need to talk to your lender to make sure you get the correct number.
You must pay off your loan to sell your current car, but when you decide to pay will be up to you. If you have the funds to pay it off before selling, it's best to do it as soon as you can to make the process easier and more seamless. You can also wait until the day of the sale and use the money you earn from it to pay off the loan.
If you choose to wait until the day of the sale, it’s important to talk to your lender and let them know that’s your plan. They may have you and the buyer meet at a local branch or office to streamline the process and sign all the paperwork.
Once you submit the full payment for the payoff amount, you'll be able to sell your car! From there, the lender will be able to release the vehicle to a new owner and sign off on the title.
2. Determine the Value of Your Current Car
Though it isn't mandatory, it's always a good idea to estimate the overall value of your car before selling to see how it can help you buy your next used vehicle. However, if you're selling something that's still under a loan, you'll need to calculate how the payoff amount affects its value, too.
If the payoff amount is more than the overall value of the vehicle, you may need to use a bit of what you earned from the sale to pay off your account. If your car is worth more than the payoff amount, you'll be able to use the difference towards your vehicle purchase for added savings.
There are tons of online tools that can help you determine the value of your vehicle. In most cases, the only information you need to get started is:
You can get a more accurate appraisal by providing more in-depth information. The current condition of the interior and exterior is important, but service records are also critical. If you kept up with the vehicle’s manufacturer-recommended maintenance schedule, it might be worth even more.
Selling a Car with Positive Equity
Positive equity occurs when the market value of the car exceeds the principal amount on your loan. This is the best-case scenario when selling a car with a loan. For example, the buyer agrees to pay you $15,000 for your car and you only have $5,000 left to pay off. You’ll be able to pocket the $10,000 or put it towards your next ride.
In this situation, the buyer can do two things:
- Pay the lender the entire amount.
- Pay the lender what’s left on the loan and pay you the difference.
It’s usually easiest to have the buyer pay the lender directly. They will be able to get the lien released and collect the title and any other paperwork right from them. All they need to do after that is head to the DMV to get it registered.
If you choose to have the buyer pay the lender what’s left on the loan and give you the difference, you’ll definitely need to go to a local branch or office together. That way, the lender can make sure the process goes smoothly and handle all of the necessary paperwork.
Selling a Car with Negative Equity
If you calculate the value of your vehicle and realize that you owe more on the loan than the car is worth, you have negative equity. In this case, the buyer will pay the lender what the vehicle is worth to secure the title while you’ll still be responsible for the difference.
When this happens, you may have to take a few more steps before selling the car. Your options in this scenario include:
- Postponing the sale until you can pay off more of the loan.
- Securing a personal loan to cover the difference.
The best course of action here is to postpone the sale until you can either payoff the loan entirely or gain positive equity. That will help ensure future financial stability.
If you can’t wait, you may be able to secure a personal loan with the lender to help cover the remainder of the car loan. It’s important to remember: Personal loans tend to be more expensive than car loans, so plan to pay it off as quickly as possible.
Trading in a Car With a Loan
Trading in a vehicle to a dealership is an excellent option for many drivers. Like selling a car, it's best to pay off your loan before trading in but working with a dealership can help you get more payment options and make the entire process even easier.
Reputable dealerships have working relationships with a network of banks and lenders. Since they own whatever vehicle you’re planning on buying from them, you can skip a trip to your local bank and work everything out in their office. They can handle all the paperwork, then secure the title for the car you’re selling and get you squared away with the lender.
If you have negative equity, working with a dealer is probably your best option. Why? If you’re planning on buying a vehicle from them, they can simply roll over the difference to your new loan when you finance your next used car.
It's important to understand that adding the negative equity from your previous loan to your new one can result in a bigger financing plan and higher monthly payments. Fortunately, doing something as simple as boosting and building your credit before financing can make it easier to be approved for the options and terms you need.
Trade In Your Current Car at Val-U-Line®
Selling or trading in a car is quick and easy, even if it still has an active loan. To learn more about the trade-in process at Val-U-Line® and how we can get you behind the wheel of your perfect new-to-you vehicle, contact us or visit any one of our nationwide used car dealers today!