You can sell a car even if you still have a loan, but there will be a few extra steps in the process.
“When there’s a loan on the car, it means your lender owns and has title to it,” says Grant Feek, CEO of Tred, an online peer-to-peer auto marketplace. “You have to be the legal owner to sell the car, which means paying off the loan and having the title transferred to you.”
To do this, you need to know the value of your vehicle and the loan repayment amount. You can then use the current market value of your car to determine how much equity you have, and you’ll also need to decide whether it’s best to sell to a dealer or privately.
Here are the steps to sell a car with a loan.
Step One: Know What Your Car Is Worth
“Anytime you’re preparing to sell a vehicle, it’s a good idea to start by getting a realistic estimate of your car’s value based on its condition, mileage, and your local market conditions,” says Matt Dundas, Finance Director at Carvana.
There are many online resources that can help you do this, such as Kelley Blue Book and Edmunds. To get an estimate of your car’s value, you’ll need to provide information about your car, such as make, model, year, mileage, and overall condition, along with your zip code to get car estimates. price for your area. Sites may also ask for your vehicle identification number to give a more accurate estimate.
It can also be helpful to search for sites where other people are selling their used cars to see listings of vehicles like yours, Feek says. “Keep in mind that just because they’re listed at a certain price doesn’t mean they’ll sell for it, but it’s a good way to get an idea of the average price in the market.”
Step Two: Learn Your Payment Amount
Your repayment amount is the amount you will need to pay off your loan, plus interest and fees. You must contact your lender to obtain a 10-day repayment statement, which is a document showing the amount of your repayment plus 10 days of interest.
Most lenders will let you download a statement from their website, or you can call to have one mailed to you, Dundas says. Carvana requests a copy of this document if you want to sell a car with a lien to help you finalize your trade-in or sale, according to Dundas.
It may be a good idea to give yourself some breathing room in the repayment schedule, and you can do this by calling your lender. “By talking to a live person, you can customize your payment request, such as a 15-30 day payment,” says Steven Gordon Sr., director of dealership operations at Way.com. “Ask the supervisor what the protocol is with the lender to cancel the extended warranty and gap insurance to get the remaining amount of the original price for those refunded to your lender, which is ultimately yours.”
Gordon says take note of who gave you the repayment quote, as well as whether you can repay the loan electronically. “The sooner you can repay the lender, the sooner you get the title and the sooner you’ll get your money,” he says.
Third step: determine your capital
With the value of your car and the amount of your gain on hand, you can determine your current equity.
“Equity represents the value remaining after the loan is paid off and can be calculated by subtracting your payoff quote from the value of your vehicle,” Dundas explains.
You can sell a car with positive or negative equity, but the process will be a little different.
Sell with positive equity
If you have positive equity, your car is worth more than the amount of the gain. In this case, there are two ways to sell a car with a loan, Gordon says. One method is to ask the buyer to give you two checks: one to pay off the loan balance to the lender and one for the remaining equity in the car.
Alternatively, the buyer could give the lender a check for the full value of the car. Then your lender will send you a check for the funds that exceed the loan balance, Gordon says.
Sell with negative equity
If you have negative equity in your car, called “upside down”, you owe more than the current market value of the vehicle. As a result, “you’ll need to come up with cash when you sell your vehicle to cover the extra amount owed to the lender or try to defer the extra amount owed on your next car loan if you trade in,” Dundas says.
Turning your existing balance into a new loan will leave you with a bigger and more expensive loan, because you’ll be borrowing more than the price of your new car. If you choose to do so, the Consumer Financial Protection Bureau advises you to make sure you know who to contact at your current lender to determine when your old loan has been paid off.
Fourth step: sell to an individual or a reseller
You can choose to sell your car privately or to a dealership. Working with a reseller is the easiest option, but you can get a better price if you sell to an individual.
Sell to a Dealer
When you trade in a car with a loan, the dealership can handle the repayment process on their end. The dealership will appraise the car, call the lender, and get a refund amount, Gordon says.
“If there’s equity, you can use all, some, or none of the equity as a down payment on the vehicle you’re buying,” he says. “Typically, equity is applied to the door price and an outstanding balance is due.”
In negative equity situations, the dealer can help you carry over your loan balance to your new car loan.
A dealer can also help you save sales tax on your next purchase. “In many states, the value of your trade-in can be subtracted from the price of your next car when calculating sales taxes owed, which can add up to hundreds or thousands of dollars in savings,” says Dundas.
If you’re going through a dealership, Feek recommends negotiating the final purchase price of your new car before telling the dealership that you want to trade in your old vehicle. “Otherwise, if they know about the trade-in ahead of time, they might start manipulating the purchase price of the new car as part of the equation, to make it look like you’re getting a better deal. offer than you actually are,” he says.
If it turns out that your payout amount is more than their bid price, he suggests selling your car privately instead, as you’re more likely to get a better price. “You’ll want to make sure the price they’re offering you for the car is above your cost price, otherwise you’ll have to pay the dealership the difference,” Feek says.
Sell to an individual
“Selling a car privately is your best bet to get the best price,” Feek says. “You’ll almost always make thousands more sales privately than you’ll trade or sell to a dealership.”
That said, reselling to an individual can be more complicated when you still have a car loan. You will have to manage the payment process yourself in advance, which takes at least a few days and often much longer. “And unless the seller is someone who already knows you (and trusts you), they’re unlikely to want to pay for the car if you don’t have the title to prove you own it, and both of you might have to wait weeks to get the title once the car is paid off,” Feek says.
Step Five: Don’t Forget the Taxes
Before selling a car with a loan, make sure you are aware of the tax implications of any selling strategy so you don’t have any costly surprises.
“Depending on how your loan was set up, you may have paid taxes up front, or more likely they were rolled into your monthly payment,” Feek says. “You will need to confirm with your lender and your state (Department of Motor Vehicles) if you will owe taxes once the car is titled in your name.”
If you learn you’ll have to pay taxes, you can ask if there’s “a grace period during which you can avoid paying taxes if the car is transferred to a new buyer within a certain period,” he says.
The key to selling a car while you still have a loan is to do your homework beforehand. “Always be careful (and) ask lots of questions,” Gordon says.