How to Sell a Financed Car Without Paying It Off

Selling a Financed Car Quick Facts

• Find out what you owe on the car loan. Once you know the amount, get the value of your vehicle.
• If you owe less than the value of your vehicle, the bank gets paid off first and gives you the car title. You can pocket the difference or use the money as a down payment on another car. Selling a car with a loan to a dealer involves fewer steps because they handle all the paperwork.
• If you owe more on your car loan than your vehicle is worth, you must pay the bank the difference when you sell the car.
• When you sell a car to another individual before paying it off, it adds extra steps.

When selling a car with a loan, you first must determine what, if anything, you owe. If you finance a car, it usually means you’ll be making payments on the loan for up to 72 months (six years). Even with shorter repayment terms, like 36 months (three years), you may still find yourself interested in selling the car before the loan balance reaches zero. Here’s how to sell a car when you’re still making payments.

• Evaluate Your Equity
• Selling a Car to a Dealer
• Selling a Car to a Private Buyer
• How to Transfer the Car Title

Evaluate Your Equity

The first step to selling your car is to figure out where you stand with the loan. Do you owe more than the car is worth? If so, you have what’s called “negative equity.” The situation is also often referred to as being upside down on a loan, and you’ll need to pay that difference to the bank when you sell the car and close the loan.

Basic math tells you it’s better to sell a vehicle when you have positive equity, meaning the car’s market value is more than the loan balance.

1. Find out the car’s value from our sister site, Kelley Blue Book, to determine a fair price for the sale. These numbers will vary depending on the vehicle’s mileage, condition, and geographical region.
2. Contact the lender for your finance agreement and request a 10-day payoff letter. The letter will indicate the amount required to satisfy the remaining loan balance.
3. Compare these numbers and see where you stand in terms of equity. This information will help you determine how to move forward with the sale.

Remember, no matter if you owe more than the car’s worth, or not, the bank always gets paid first. Read on to see how to simplify the process by trading or selling it to a dealership.

Consider Trading the Car

If you’re upside-down on the loan and still set on getting rid of your car, you might consider trading it for a different car. Trade-in values apply toward purchasing another vehicle at a dealership, and the lender may add the remaining balance to the new car financing agreement. However, this alternative is likely not the best financial choice because you will immediately be deeper into negative equity with your new ride.

Selling a Car to a Dealer

Every situation is different. Some sellers might be downsizing and not looking for another vehicle. A move overseas or to a city with public transportation are other scenarios where you might want to offload your car.

No matter the reason for the sale, there will be some concessions when selling a financed car without paying it off. As with all budget decisions, weigh your options and decide which suits your unique needs.

A dealer’s offer may not be as high as what you can collect by selling privately. However, a private sale is more time-consuming and complicated (more on that below).

Consider an Instant Cash Offer

When you’re interested in selling your car, try our Instant Cash Offer tool. You can enter the VIN and criteria to help determine the car’s condition and receive offers from participating dealers within minutes.

You shop around when buying a vehicle, so do the same when selling a car you owe money on. Contact a few dealers to see if they’re willing to buy and what they’ll pay you. Some offers may be higher than others, depending on demand for your make and model.

Selling your car to a dealer is usually easier and faster than selling to a private individual. The dealership usually handles the transaction and all paperwork. Its staff knows the ins and outs of working with lenders to close out loans and the DMV to transfer titles.

If you have positive equity in the car, the dealer may not issue your payout check until the transfer process is complete.

Your lender will release the title when you have paid the balance. In this case, the dealer will have to pay off your loan upfront. Then, the bank will mail the title directly to the dealer. If you’re upside down on the loan, you’ll have to cover the gap between the dealer’s purchase offer and the amount listed in your 10-day payoff letter.

Selling a Car To a Private Buyer

There are multiple ways to handle a private sale of your vehicle. However you do it, make sure you first review the legal requirements outlined by your state’s DMV and gather all the necessary documents. Contact your lender to see if they’ll oversee the private sale at their local branch. They may already have established procedures to streamline the process for you and the buyer.

Again, if you’re upside-down on the loan and selling the car for a fair price, you’re still on the hook for the remaining amount. The lender will not release the title until you have paid off your loan.

RELATED ARTICLE: How to Sell a Car: 7 Necessary Steps to Follow

How to Transfer the Car Title

Title transfer can happen after the original loan balance is satisfied. If you sell to a dealer, the title will be mailed directly to them. If you sell the car privately, the lender might send the title to you. Then, you will be responsible for ensuring its delivery to the new owner. Title transfer fees vary from state to state. See our article about Autotrader’s Private Seller Exchange to get details on how this marketplace service helps you exchange money and the title in a secure environment.

This article has been updated for accuracy since it was originally published. Chantel Wakefield contributed to this report.