A Step-by-Step Guide to Selling Your Financed Car

Selling a car with a loan isn't as simple as selling one you own outright. Since the lender is basically a part-owner, you'll need to involve them in the process. This often means extra paperwork and a bit more time.

Here’s a step-by-step guide on how to sell a financed car:

1. Find out your car’s worth

To get a good idea of what your car is worth, check out websites like Kelley Blue Book and Edmunds. They'll give you an estimate based on its make, model, mileage, age, and condition.

2. Figure out the payoff amount

To determine the exact amount needed to pay off your car loan, contact your lender directly. This amount might differ from your remaining loan balance.

It's also important to check if your loan agreement includes a prepayment penalty. Some lenders charge a fee for paying off a loan early. This is because they rely on interest payments over the loan term.

3. Calculate your car’s equity

To determine your car's equity, you need to know two things: its current market value and the remaining balance on your loan. Subtract the loan balance from the car's current market value, and you get either a positive or negative equity.

• Positive equity: If your car is worth more than what you owe on the loan, you have positive equity. This means you'll receive a payout after paying off the loan.
• Negative equity: If your car is worth less than your loan balance, you have negative equity. This means you'll need to pay the difference out of pocket to fully own the vehicle.

Read: How to Get Rid of Negative Equity on Car Loan

4. Inform your lender

Before selling your car, you'll need to inform your lender of your plans. They will provide you with a payoff statement, which specifies the exact amount needed to fully pay off the loan. It's important to note that this amount can change over time due to accruing interest.

Remember, your lender holds the title to your car. To transfer ownership to the new buyer, you must first pay off the loan in full.

5. Decide whether you want to sell privately or to a dealership

• Selling privately: While selling your car privately can yield the highest potential return, it requires significant effort. You'll need to handle tasks like marketing, scheduling test drives, and negotiating with buyers. Additionally, buyers may be hesitant if they know there's an outstanding loan on the vehicle, as it can complicate the process.
• Selling to a dealership: Selling or trading your car to a dealership can be a more straightforward option. Dealerships often purchase used vehicles and offer trade-in deals. However, expect to receive a lower offer compared to a private sale. The dealership's offer will factor in costs like reconditioning and overhead, potentially reducing the final payout.

6. Complete the sale

Once you've found a buyer, the final step is to pay off the loan. Contact your lender to understand their preferred payment method. In many cases, you can pay off the loan at the lender's office and transfer the title directly to the buyer.

If the buyer pays you directly, you'll need to use those funds to pay off the loan. Any remaining balance will be yours to keep.

Remember, selling a financed car involves extra steps and considerations. By following these steps and communicating with your lender, you can navigate the process smoothly.

FAQs

1. Can I trade in a car that I owe money on?

Yes, you can trade in a car with an outstanding loan. However, if you owe more than the car is worth, you may need to roll that amount into your new car loan.

2. Can I transfer a car loan to another person?

In certain situations, it might be possible to transfer a car loan to another person. However, the new borrower would need to qualify for the loan based on their own credit history.

3. Can I transfer the title of a financed car?

No, you cannot transfer the title of a financed car. The lender holds the title as collateral and will only release it once the loan is fully paid off.

4. Does selling a financed car hurt my credit score?

Paying off a car loan can have a minor impact on your credit score. While it might reduce your credit mix, this is generally a small factor.