How to sell a car with a loan?

How to sell a car with a loan

Most people don’t know how to sell a car with a loan. You can’t criticize them. We avail car loan schemes because of the benefits they offer – staggered monthly payments, improved credit history, saving money for other essential things, and the chance to drive a brand new car off the lot.

Not because we have any plans to sell the car before repaying the money we owe on its loan. So what happens if such a scenario arises? The good news is that you can sell a car with a loan. Here are several factors that will determine the course of action you’d take to achieve that goal.

Before You Sell Car with a Loan

Here’s what you need to do:

Determine the payoff amount

Determine the payoff amount

The amount you still owe on the car loan is its payoff amount. It includes the amount outstanding on loan, any prepayment penalties in the loan scheme you subscribed to, and other unpaid fees.

The best way to determine the payoff amount is to get in touch with the lender. You’ll need to repay all of it for the lender to transfer the car’s title to your name.

Get other details needed to sell

Ask your lender about the paperwork and information they think you’d need to sell the car after clearing its outstanding loan. Then get in touch with your state’s Department of Motor Vehicles.

Check with the DMV about the paperwork and other details they’d require to sign off on the car’s sale. You can either visit the DMV in person or contact them through their various online channels.

Determine your car’s actual worth

Determine your car’s actual worth

You can check out your car’s actual worth by entering its details on vehicle valuation sites. There are many of them, including Kelley Blue Book, Edmunds among others that you can consult.

These websites will require you to enter your car’s make, model, overall condition, mileage, and other key information to present you with your vehicle’s computer-generated value.

Determine your equity on the car loan

Subtract your vehicle’s payoff amount from its total value. If you end up with a positive value, it means you have ‘positive equity’ and could make money on selling the car.

However, if the result is negative, you’re ‘upside down on the car loan’. That means you’d have to give the lender all the money you’d generate from the car’s sale and pay the remainder from your pocket. 

How to sell a car with a loan?

Here’s how you can sell a car with an outstanding loan:

a) Private sale with positive equity

Private sale with positive equity

Such a scenario is favorable for the car owner as it allows them to make some money on the car’s sale. They’d do that by paying the total amount they owe to the lender, after which the lender will pay the difference, if any, to the car owner. Let’s understand this point with an example.

Assume for a moment that you still owe $5,000 to the lender. Provided you succeed in selling the car for $7,000, you’d be able to pocket $2,000 from the car’s sale. You won’t have to pay anything more to the lender to sign the title and give it to the buyer.

Once the buyer has the title, they will take it (alongside the necessary paperwork required by your state’s DMV) to the DMV’s office and have the car’s title transferred to their name.

b) Private sale with negative equity

Such a scenario is favorable for the lender. It allows them to pocket not only the car’s sale price but also the remainder. The buyer will pay the sale amount whereas you’d be the one paying the difference. That is to say that you’d end up paying from your pocket to get rid of the car.

For instance, if the car’s sale price is $5,000 but you still owe $6,000 to the lender, you’d have to pay the remaining $1,000 to the lender. After that, the lender will sign the title and give it to the buyer who will then be able to get the car registered under their name at the DMV’s office.

c) Trade it in with a dealer

Trade it in with a dealer

The best thing you could do is to clear the loan and sell the car on your own. The second best thing, if you cannot afford to pay off the whole loan, is to trade in the automobile with a dealer. That’s because dealers will handle all the paperwork for you and complete the deal quickly.

Having said that, there are a few downsides if you decide to go this route. The first is that dealers never pay as much for a vehicle as private buyers. If you’re carrying negative equity, they will build its cost into the new car loan. It means you’d just be transferring debt from one car to another.

FAQs and Answers

Q: What to do if the bank wants a loan payoff before you sell your car?

A: Some banks might require you to clear the car loan before you can sell it. There are two possible options you can exercise to get out of this tricky situation – the first of which is refinancing your loan at a lower interest rate. Those of you with good credit can entertain this option.

The second option is to get a personal loan and use it to pay off your car loan. But they have much higher interest rates and allow the lender to repossess your car if you cannot make payments.

Q: Can you negotiate a car payoff balance?

A: You can – and must try to – negotiate a car payoff balance with your lender. The success of the operation won’t only save your money, but it would also free up your budget to spend on other essential things. Check out this guide to learn more about how to negotiate your car payoff balance.


You are now are of how to sell a car with a loan. The three options we presented above – private sale with positive equity, private sale with negative equity, and trading it in your car with a dealer – are so diverse that you can easily select one meeting your requirements. 

However, before you pick up any option from the three, make sure you complete the steps mentioned before laying out those options. Doing so would save you and the car’s buyer from any frustration and make the sale go seamless.

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