Your Guide to Selling a Car With a Loan

This is a guide for selling a car with a loan. You have to pay off the loan before transferring ownership. To prepare, you can determine your payoff amount and current market value.
Written by Jacoba Bood
Reviewed by Jessica Barrett
To transfer ownership, you need to pay off your loan. Any difference between the balance and the sale price belongs to the lender.
Selling a car with a
car loan
is absolutely possible—but you will have to take some extra steps.
That’s why the
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experts at
have put together all the information that you need to know about selling a car with a loan—even if you have negative equity.
So if you’re ready to sell your financed set of wheels, read on.
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Collect the necessary information to sell your car

If you want to negotiate a car sale with a loan successfully, you will need to have some basic information on hand. Here are the things you need to sell your car.

1. Get your payoff amount

The payoff amount is the total amount that you owe your lender before the car is completely paid off.
You will have to reach out to your lender to get your payoff amount. When you do, ask your lender to provide an official payoff letter. Your loan will have to be completely paid off before you can transfer the title of your vehicle.
Talk to your lender about your plans to sell so that they can guide you through the steps you will need to take from there.
You will likely have to contact your loan officer to complete the transaction. If you have an online lender, they will likely direct you to an associated institution.

2. Figure out what your car is worth

Use pricing guides like the
Kelley Blue Book
to determine the current market value of your car.
The figures you want to pay attention to are the
trade-in vs. private party values
The private party value is what you can expect to get if you choose to sell your car privately. The trade-in value is the value you can expect to get back if you decide to sell your vehicle to a dealership.

3. Determine your equity

Now, you can use your payoff amount and the current market value of your car to determine your equity. You get your equity by subtracting the payoff amount from the current market value of your vehicle.
If the figure is positive, the amount you are left with is the equity that you have in your car. This is the amount that you can expect to get back after selling the vehicle with the loan.
If the figure is negative, you are
upside down on your car loan
. A car loan is upside down when the vehicle’s value is less than the total amount remaining to be paid off on the loan. This scenario is common with new cars that tend to depreciate quickly.
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If possible, pay off the loan before selling

If you have negative equity, postponing the sale until you have positive equity is almost always the best option.
If you choose to sell when you are upside down on a loan, you will need to have enough cash on hand to pay off the difference before you make the sale.
Even if you have positive equity, paying off the loan before you sell will still help simplify the process. Buyers are more likely to be attracted to a straightforward sale. Paying off your loan might improve your chances of getting a better price for your car.
You might want to take out a short-term loan to pay off your existing loan before you sell. You can then use the money from the sale to pay off the short-term loan.
Just keep in mind that the interest rates on short-term loans tend to be much higher than long-term
. Consider this option if you have positive equity and are confident that you will be able to sell your car for a fair price.
Key takeaway It’s a good idea to wait until you have positive equity before you sell your car with a loan. Selling a car with an upside-down loan should be avoided, if possible.

Selling a car with a loan to a private buyer

You will have to pay off your loan to transfer ownership to a private buyer.
Selling a car with a loan to a private buyer might land you a decent price—but the deal can be tricky to navigate.
This is especially true if you have negative equity in your car. If you haven’t paid off your loan, you will not have a clean title to the vehicle. Some extra steps will be necessary to transfer a
clear car title
to the buyer.
Before selling to a private buyer, consider getting a purchase offer from a dealer like CarMax first. This way, you will have a backup plan if you can’t land a higher price with a private sale.
Be sure to reach out to a lender to understand the necessary steps that you will need to take to complete the sale. You will likely be asked to complete the sale on location or at the office of an affiliate financial institution.
Key takeaway Selling a car without a clean title can complicate the process and deter potential buyers.

Selling with positive equity vs. selling with negative equity

Let the lender take the lead on the transaction.
In most cases, the buyer will transfer the money from the sale to the lender.
If you have positive equity, the lender will return the remaining amount leftover after the loan pays off back to you.
If you have negative equity, the lender will keep the remaining balance on your loan.
Alternatively, the buyer could make separate payments; one payment will go to the lender to pay off the loan. If you have positive equity, the remainder of the balance on the sale left over after the loan will go to you. If you have negative equity, you will have to transfer the remaining on your loan to the lender.
After the money has been exchanged, you and the lender will sign the title to transfer it to the buyer.

Trading in a car with a loan

If you want to avoid unnecessary hassles, trading in your car to a dealership can be a convenient option.
Car dealers are highly motivated to move their stock. This means that they will almost always accept an offer for a trade-in.
Dealerships are familiar with negotiating trade-ins on cars with loans. They will negotiate with your lender, handle the paperwork and pay off the loan—often within the course of a single afternoon. Selling a car with a loan to a dealership as a trade-in will make the process a lot easier.
The downside is that you will probably get a lower price for your car than you would if you choose to sell it privately.
Key takeaway Trading in might make you less of a profit, but it is by far the more convenient option.

Trading in a vehicle with positive vs negative equity

If you have positive equity on a vehicle you are trading in, you will receive a credit toward your next car.
If you have negative equity, the dealer will add the money you owe to the purchase price of your new vehicle.
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