Even if you still owe money on your automobile, you can still sell it, but the procedure will need a few extra steps.
According to Grant Feek, managing director of the private seller exchange at Cox Automotive, “When there is a loan on the car it means your lender owns it and holds the title.” “You have to pay off the loan and get the title transferred to you in order to sell the car because you have to be the owner of record.”
You’ll need to know the worth of your car and the loan payment amount to complete this. The market value of your car can then be used to calculate how much equity you have. You’ll next need to choose between selling to a dealer or a private party.
The steps required for selling an automobile with a loan are listed below.
Step 1: Determine the Value of Your Vehicle
According to Matt Dundas, senior director of finance at Carvana, “Whenever you’re getting ready to sell a car, it’s a good idea to start by getting a realistic estimate of what your car is worth based on its condition, mileage, and conditions in your local market.”
This can be accomplished with the aid of a variety of online tools, including Edmunds and Kelley Blue Book. You will need to input information about your automobile, including the make, model, year, mileage, and general condition, as well as your ZIP code to get pricing estimates for your region, in order to acquire an estimate of its value. To get a more precise estimate, websites may additionally ask for your car identification number.
To find postings for automobiles similar to yours, Feek advises searching websites where other people are selling their old cars. Remember that just because something is advertised for a given price doesn’t guarantee that it will sell for that amount, but it’s a useful tool to gauge market pricing.
Step 2: Learn Your Payoff Amount
Your payoff amount is the total amount needed to pay off your loan, interest, and any associated costs. You should obtain a 10-day payback statement from your lender, which is a statement that includes your payoff amount plus interest for 10 days.
Most lenders allow you to download a statement from their website, and you may also contact and ask to have one mailed to you, according to Dundas. According to Dundas, if you wish to trade in or sell a car that has a lien, Carvana will need a copy of this document to complete the transaction.
Giving yourself a little wiggle room in the payoff plan can be a smart idea, and you can do this by getting in touch with your lender. You may tailor your payoff request by chatting to a live person, says Steven Gordon Sr., senior director of finance and partnerships at Way.com, such as a 15- to 30-day payoff. In order to get the remaining balance of the initial payment for the extended warranty and gap coverage reimbursed back to your lender, which ultimately gets back to you, “ask the supervisor what the protocol is with the lender to cancel the extended warranty and gap coverage.”
Gordon advises keeping a record of the person who provided the payoff estimate and whether you may repay the loan electronically. In his words, “the quicker you can pay off the lender, the quicker you get the title, and the quicker you will have your money.”
Step 3: Calculate Your Equity
You can calculate your current equity using the value of your automobile and your payment sum.
According to Dundas, “Equity represents how much value is left over after paying off the loan and can be calculated by subtraction from your car’s value.”
With either positive or negative equity, selling an automobile is still possible, but the procedure will be slightly different.
Selling With Equity Positive
Your car is worth more than the payback sum if you have positive equity. According to Gordon, there are two ways to sell a car with a loan in this situation. One strategy is to ask the buyer to give you two checks: one to cover the outstanding loan debt owed to the lender and the other to cover any residual car equity.
A cheque for the entire value of the vehicle could also be provided by the buyer to the lender. The monies above the loan sum will then be paid to you by cheque from your lender, according to Gordon.
With Negative Equity, Selling
You owe more money on your car than its current market worth if you have negative equity, often known as being upside down. Since this is the case, “you’ll need to come up with cash when you sell your vehicle to cover the extra amount due to the lender or try to roll the extra amount owed into the loan on your next car if you’re trading in,” Dundas advises.
Rolling your current balance into a new loan will result in a larger, more expensive loan because you will be taking out a loan for an amount greater than the cost of your new vehicle. The Consumer Financial Protection Bureau says that if you do this, you should be careful to know who to contact at your current lender to find out when your previous loan has been repaid.
Step 4: Sell to a private buyer or dealer
You have the option of selling your car to a dealer or a private buyer. Although working through a dealer is simpler, selling to a private person may result in a higher price.
If, Selling to a Dealer
The dealer can manage the loan payment process when you trade in a car with one. According to Gordon, the dealer will determine the car’s value, contact the lender, and determine the payoff amount.
“If there is equity, you can use all, some, or none of the equity as a down payment on the vehicle you are buying,” the man advises. “Typically, the equity is applied to the out-the-door price and the unpaid balance is due.”
The dealer can assist you in adding your outstanding loan sum to your new auto loan if you have negative equity.
On your subsequent purchase, a dealer can also enable you to avoid paying sales tax. “In many states, the value of your trade-in can be subtracted from the price of your next car when calculating sales taxes due, which can add up to hundreds or thousands of dollars in savings,” adds Dundas.
If, Selling to a Private Party
If you sell privately, you might make more money, but the procedure might be more difficult for you.
The payment procedure will need to be handled by you in advance; it often takes much longer and takes at least a few days. “And unless the seller is someone who already knows (and) trusts you, they’re not likely to want to pay for the car when you don’t have the title to prove you’re the owner, and you both might have to wait for weeks to get the title once the car is paid off,” adds Feek.
Step 5: Don’t Forget About Taxes
To avoid receiving an expensive surprise, make sure you are informed of the tax ramifications of any sales plan before selling a car with a loan.
“Depending on how your loan was set up, you may have paid taxes upfront, or more likely they’ve been rolled into your monthly payment,” explains Feek. If the vehicle is titled in your name, “you’ll want to confirm with your lender and your state’s (Department of Motor Vehicles) Department whether you’ll owe any taxes.”
Ask if there is “a grace period during which you can avoid paying taxes if the car is transferred to a new buyer within a certain time frame,” he says, if you find out that you will be required to pay taxes.
To successfully sell a car while still making payments on it, do your research in advance. Always exercise caution, and ask lots of questions, advises Gordon.