Selling a car you still owe money on? Here’s what you need to know.
Many drivers purchase their cars with the help of an auto loan, which allows you to buy a new or used car with borrowed money and then pay off that loan over a set amount of time. But what happens if you want to sell your car before you’ve finished paying off the loan? It’s possible to sell a financed car but the process can be a little complicated, especially if you’re selling it in a private sale as opposed to selling it to a dealership.
But selling a car with a loan on it is certainly doable, it just requires communication between you, your lienholder and the buyer. Here’s everything you need to know about selling a car if you’re still paying off the loan.
A lien is just another word for the legal interest that your lender, or lienholder, has in the property they helped you buy. When you take out a loan through an institution like a bank, credit union, or auto dealership, they become your lienholder. But if the lending institution sells your loan to another party, your lienholder can change.
Your lienholder is usually listed, along with you, on your car’s title certificate. A car’s title, also called a pink slip, is just a legal document issued by your state’s DMV that says who owns a vehicle. When you sell your car, you’ll sign the car’s title over to the new owner.
But if there’s a lien on your car, you’re not the only one with a financial stake in the vehicle. The loan has to be paid off before someone else can take ownership of the car. And if you took out a loan on your car, you may not even have the car’s title – sometimes a lender will keep the title until a loan is paid off, so you may have to go to the lender directly to pay off the loan, retrieve the title and sign it over to the car’s new owner. That’s why selling a vehicle with a lien on it can be complicated, but let’s break down your options.
One option when you’re selling a car before the loan is paid off is to sell it to an auto dealership. You might not get as good a price as if you were to sell it to an individual buyer, but a car dealer will be used to working with lots of different types of drivers, and they’ll be able to work with you and your lienholder. They may also be able to pay you in cash, which is helpful if your priority is unloading your car quickly.
Before you settle on a dealership, visit several and get offers from each so you can make sure you’re taking the best one. This will also help you get a good sense of what your specific car is worth.
Inform the dealership that there’s a lien on your car. They’ll work with your lienholder to get the title from them, which means paying off the loan balance, and then they’ll give you the rest of the value of the car. But if you owe more on the car than it’s worth then you’ll wind up owing the dealership.
Selling to a private buyer can sometimes get you a better deal than selling to a dealership, but it can be a little more complicated. When selling your car, let prospective buyers know that there’s an outstanding loan on the car, and if the car’s title is being held by the lienholder, tell them that too. You want to make sure any prospective buyer knows that purchasing your car won’t be as easy as showing up, handing over payment, picking up the signed-over title and driving away.
You should also contact your lending institution and tell them you’re planning on selling your car. They may have a specific process you’ll need to follow. They’ll also give you what’s called a payoff amount, which is the amount needed to pay off your loan immediately. If you took out an auto loan with a local car dealer, or a bank or credit union with a brick and mortar location nearby, you can simply conduct the sale there.
You, the buyer, and the lender will all be present. The money the buyer pays will go to pay off the loan balance and the remainder will go to you, then you’ll be able to sign the title over to the car’s new owner. It’s basically completing two transactions at once: Paying off the remainder of your loan and taking over the car’s title, then selling the car to a new buyer and handing over the title.
If you aren’t able to go to a physical location to complete the sale, maybe because you used an online lender, you’ll still go through a similar process with both the lender and the car’s buyer. It might take a little longer, but your lender may be able to send the title directly to the car’s new owner once you’ve paid off the loan.
And, once you’ve sold your car, don’t forget to cancel your car insurance if you no longer have a vehicle, or to adjust your coverage if you have a new car.
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Anna Swartz is a Managing Editor at Policygenius in New York City, and an expert in auto insurance. Previously, she was a senior staff writer at Mic, writing about news and culture. Her work has appeared in The Dodo, AOL, HuffPost, Salon and Heeb.