Selling a car is a pretty straight-forward process. Typically, you gather all of your paperwork, set your asking price, have your car cleaned and detailed so that it is more attractive to buyers, create an ad, set up a test drive for a serious bidder, and then close the deal. However, things are a little bit more complicated when you need to sell a car with a loan.
If you’re still making payments on the car it means that the vehicle doesn’t officially belong to you.
The title is not yours until you’ve made your last payment.
And this is a deal breaker if you want to sell it to someone else.
Or is it?
The good news is it’s possible to sell a car with a loan. However, you’ll definitely have to be a bit more strategic about how you find a buyer.
The approach you take will depend on your personal preferences and goals. If you’ve been discouraged about the process, then this article will offer a couple of options below.
But first, let’s go over what you’ll need to know before choosing an option.
What You Need to Know Before Starting the Process
If you want this process to go as smoothly as possible, it’s important that you have basic information about your car.
First, you need to know your “pay off” amount. In other words, how much will it take to completely pay off the loan?
So ask your lender how much you owe them.
You may also take this time to ask the lender what steps you should take when selling the car. If your lender is a local bank, they’ll probably suggest that you bring the buyer into the office to sign the paperwork.
If it’s an online lender, they’ll probably suggest that you take the buyer to one of their partners to complete the paperwork.
Next, you should then find out how much your car is actually worth.
Use Edmunds or Kelley Blue Book to find it’s current value, what you would be most likely to get if you were to sell it to a private buyer, or what you would be most likely to get if you were to sell it to a dealership.
Lastly, you should find out whether or not you have equity in the car. In order to find this out, subtract your “pay off” amount from the total value of your vehicle.
If the number is positive, it means that you have equity. If the number is negative, it means that all of the money that you make from the sale of the car will go to your lender and you’ll owe a little extra on top of that.
How to Find Out How Much Your Car is Worth
You should rely on accurate, 3rd-party sources to identify how much your car is worth. Dealerships do not always have your best interest in mind. That said, here are a few places you can get a rough estimate:
- Kelly Blue Book – https://www.kbb.com/whats-my-car-worth/
- Edmunds – https://www.edmunds.com/
- Autotrader – https://www.autotrader.com/car-values/
- Cars.com – https://www.cars.com/sell/book-value/
- Carfax – https://www.carfax.com/value/
- NADA – https://www.nadaguides.com/Cars
Option 1: Sell it to a Private Buyer
A lot of people prefer to sell their car to a private buyer. And that’s because in most cases, you’ll get more money. As discussed earlier, there are two scenarios: positive equity or negative equity.
If you choose to sell your car privately and have positive equity, the buyer will pay the entire loan amount to your lender and you’ll be given the difference of the sale.
There’s also a chance that the buyer could pay the remaining balance to your lender and then make a separate payment directly to you. After this, you and your lender will sign the title and then hand it over to the buyer so that they can get a new title and registration.
Conversely, if you choose to sell your car privately and have negative equity, the buyer will pay the sale amount to your lender and you’ll be expected to pay the difference of the sale to the lender.
You may pay in cash or choose to take out a loan. After this, you and your lender will sign the title and then give it to the buyer so that they can get a new title and registration.
If your loan is from an online lender then they may require the full balance of your loan before they release the title.
This means that you’ll either need to pay in cash or ask the buyer to pay the lender so that the title can be mailed to them. In most instances, this will only work if the buyer is someone who knows and trusts you.
Option 2: Trade It In
Some people prefer to sell their car to a dealership. The benefit of trading your car in is that the dealership will handle all of the paperwork.
If your car is worth more than you owe, then you’ll get credit for the difference. And this amount can be used in your next vehicle purchase.
However, if your car is worth less than you owe, then the dealer may suggest that this amount be added to your next loan.
Ultimately, this means that the loan will be bigger. If you decide to take out a new loan, then there are a few things that you should do.
First, check your credit score so that you can figure out your interest rate.
Next, before going to a dealership, find out what the current auto loan rates are. You should get a preapproval for your loan so that the interest rate won’t be inflated.
Finally, you need to know the trade-in and market value of the car that you would like to purchase.
Bonus Selling Tips
Selling Tip #1
Whenever you’re selling a car that has a loan, it can be off-putting to some buyers. In fact, many buyers are likely to distrust you completely. The best way to gain credibility with them is to involve a financial institution or bank.
This is especially the case if the person is a stranger to you.
Selling Tip #2
If you plan on creating an ad, you don’t have to include the fact that your car has a loan.
Instead, wait until you’ve found a serious buyer before you disclose this information. Ideally, you could explain these details right before the test-drive.
Let them know that you already have all of the information you need and are clear on all of the steps that need to be taken.
Selling a car with a loan may require a little more time and effort, but it’s not impossible.
The key is to know exactly what your car is worth and how much you owe on it. From that point, you can decide if you want to sell it to a private buyer or to a dealership. Each of these options has its own pros and cons.
Ultimately, the option you choose will depend on your unique circumstances. So give it a shot, because it will all be worth it in the end.
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