How To Sell Your Car When You Still Have Loan | Personal loans and advice

You can sell a car even if you still have a loan on it, but there are a few extra steps to the process.

“If the car has a loan, it means your lender owns it and holds the title,” says Grant Feek, CEO of Tred, an online peer-to-peer car marketplace. “You have to be the registered owner to sell the car, which means you pay back the loan and get title transferred to you.”

To do this, you need to know the value of your vehicle and the loan repayment amount. Based on the current market value of your car, you can then determine your equity and decide whether it is better to sell to a dealer or to a private individual.

Here are the steps to selling a car on a loan.

Step One: Know what your car is worth

“Whenever preparing to sell a vehicle, it’s a good idea to first get a realistic estimate of your car’s value based on its condition, mileage and the conditions in your local market,” says Matt Dundas, CFO at Carvana.

There are many online resources that can help you with this, e.g. B. Kelley Blue Book and Edmunds. In order to get an estimate of your car’s value, you will need to provide information about your car such as make, model, year, mileage and overall condition, as well as your zip code to get price estimates for your area. Websites may also ask for your vehicle identification number to get a more accurate estimate.

It can also be helpful to browse sites where other people are selling their used cars to see deals on vehicles like yours, says Feek. “Remember, just because they’re listed for a certain price doesn’t mean they’re selling at that price, but it’s a good way to get an idea of ​​average prices in the market.”

Step Two: Find out your payout amount

Your payout amount tells you how much you need to pay back your loan along with all interest and fees. You should contact your lender for a 10-day payout statement, which is a document that shows your payout amount plus 10 days’ worth of interest.

Most lenders will let you download a statement from their website, or you can call to request one in the mail, Dundas says. According to Dundas, if you want to sell a car with a lien, Carvana will request a copy of this document to complete your trade-in or sale.

Giving yourself some breathing room in the payout schedule can be a good idea, and you can accomplish this by calling your lender. “By speaking to a live person, you can customize your withdrawal request, e.g. a 15-30 day payout,” says Steven Gordon Sr., director of dealership operations at “Ask the supervisor what the protocol is with the lender to cancel the extended warranty and gap insurance to have the remainder of the original price for these returned to your lender, which will eventually revert to you.”

Gordon says you should take note of the person who offered you the repayment and also whether you can repay the loan electronically. “The faster you can pay off the lender, the faster you’ll get title and the faster you’ll have your money,” he says.

Step Three: Determine Your Equity

With the value of your car and the amount paid out, you can determine your current equity.

“Equity represents how much value is left after the loan is repaid, and can be calculated by subtracting your repayment offer from the value of your vehicle,” says Dundas.

You can sell a car with positive or negative equity, but the process is a little different.

Selling with positive equity

If you have positive equity, your car is worth more than the payout. In this case, there are two ways to sell a car on a loan, Gordon says. One method is for the buyer to write you two checks: one to pay back 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 sends you a check for the funds in excess of the loan balance, Gordon says.

Selling with negative equity

If you have negative equity in your car, known as “upside down,” you owe more than the vehicle’s current market value. As a result, “when you sell your vehicle, you will need to come up with cash to cover the additional amount owed to the lender, or attempt to put the additional amount owed towards the loan on your next car if you trade it in. ‘ says Dundas.

Converting your existing balance into a new loan gives you a larger, more expensive loan because you’re borrowing more than the price of your new car. If you choose to do this, the Consumer Financial Protection Bureau recommends that you know who to contact at your current lender to determine when your old loan was paid off.

Step 4: Sale to a private individual or dealer

You can choose to sell your car to a private individual or to a dealer. Working with a dealer is the easier option, but you may get a better price selling to a private party.

Sale to a dealer

When you exchange a car for a loan, the dealer can handle the payout process on their end. The dealer will appraise the car, call the lender, and get a payout, Gordon says.

“If there’s equity, you can use all, part, or none of the equity as a down payment on the vehicle you’re buying,” he says. “Usually the equity is counted towards the outside price and an unpaid balance is due.”

In negative equity situations, the dealer can help you convert your outstanding loan balances to your new car loan.

A retailer can also help you save on sales tax on your next purchase. “In many states, the value of your trade-in can be deducted from the price of your next car when calculating the sales taxes due, which can result in hundreds or thousands of dollars in savings,” says Dundas.

If going through a dealer, Feek recommends negotiating the final purchase price of your new car before letting the dealer know you want to trade in your old vehicle. “Otherwise, if they know about the trade-in in advance, they could start manipulating the purchase price of the new car as part of the equation to make it appear that you’re getting a better deal than you actually are,” he says .

If your payout turns out to be more than the asking price, he’ll suggest selling your car privately instead, as you’re more likely to get a better price. “You should make sure the price they’re offering you for the car is more than your payout price, or you’ll have to pay the dealer the difference,” says Feek.

Sale to a private individual

“If you’re selling a car to a private party, your best bet is to get the best price,” says Feek. “You will almost always make thousands more by selling privately than by trading or selling to a dealer.”

However, selling privately can be more complicated if you still have a car loan. You have to do the withdrawal process yourself in advance, which takes at least a couple of days and often much longer. “And unless the seller is someone who already knows (and) trusts you, they probably won’t want to pay for the car unless you have the title to prove you’re the owner, and you both may have to wait weeks to get the title once the car is paid off,” says Feek.

Fifth step: Don’t forget taxes

Before selling a car on a loan, make sure you understand the tax implications of a sales strategy so you don’t get a costly surprise.

“Depending on how your loan was set up, you may have prepaid taxes, or more likely they may have been factored into your monthly payment,” says Feek. “You should verify with your lender and your state’s Department of Motor Vehicles whether you owe taxes once the car is registered in your name.”

When you learn you owe taxes, you can ask if there’s “a grace period during which you can avoid paying taxes if the car is handed over to a new buyer within a certain time frame,” he says

The key to selling a car when you still have credit is to do your homework beforehand. “Always be careful (and) ask lots of questions,” says Gordon.

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