How do you pay off a car loan when selling a car?

Once you sell your car, despite having a loan balance, what happens to the loan? Is it expunged, or do you still have to pay it off? What happens to your credit score?

Answer
Those are great questions. In short, the sale cannot be finalized until the car loan has been paid off or transferred to the buyer.
When you take out a car loan, the lender places a lien on the title, which means you cannot transfer the title to a new owner without removing the lien or getting approval from the lender. In fact, the DMV won’t even process a title transfer if there is a lien on the title.
If you want to sell your car while it is still being paid off, you need to contact the lender and ask what their policy is. Often, lenders allow the buyer to pay the remainder of the loan in exchange for a free and clear title, but policies vary, so it’s important to confirm with your lender.
Once the loan has been paid off, you may see a slight decrease in your credit score, but it is usually temporary as a result of closing an active credit account. If you have more specific questions, your lender should be able to help.
Finally, after the title has been transferred and the car has been sold, don’t forget to inform your car insurance company!
If you still need an active insurance policy, you can ensure you’re getting the best rate by using Jerry, the number-one-rated car insurance app. Jerry shops for low prices with over 50 top insurance companies for free. You will get quotes in seconds, can make changes at any time, and if you ever have any questions, agents are just a text away! They even help cancel your old policy.
Jack Walsh
Answered on Dec 01, 2021
Jack is an insurance specialist and writer living in Buffalo, New York. He has a BA from Union College and worked as an insurance agent with Jerry before joining our content team. He enjoys using data and research to break down complex subjects and convey a story. In his spare time, Jack enjoys cycling, cooking, and exploring Buffalo’s beautiful waterfront.
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