If you’re thinking about selling your car but still have an outstanding loan on it, you might be wondering if that’s even possible. After all, cars are one of the few assets that often have loans tied to them, and selling a car with a loan balance isn’t exactly as straightforward as selling one that’s fully paid off. But don’t worry—selling a car with a loan on it is totally doable, as long as you know the right steps to take.
In this blog post, we’ll explore how to sell a car without paying off the loan upfront, the potential challenges you might face, and the options available to you.
The Basics: What Happens When You Have a Loan on Your Car?
When you purchase a car with financing, the lender (typically a bank, credit union, or other financial institution) holds a lien on the car. This means that they have legal ownership of the vehicle until you’ve paid off the loan in full.
When it comes time to sell the car, this lien must be addressed. You cannot transfer ownership of the car until the loan has been settled in one way or another. But the good news is that you don’t necessarily need to pay off the loan entirely before selling your vehicle.
Can You Sell a Car with a Loan? Yes, But Here’s How
There are a few different ways to sell a car that still has an outstanding loan, and which one you choose will depend on your specific situation. Let’s break it down:
1. Selling the Car for More than the Loan Balance
If your car is worth more than what you owe on the loan, the process can be pretty straightforward. Here’s how it works:
- Step 1: Determine how much your car is worth. You can check its market value by using tools like Kelley Blue Book or checking with local dealerships.
- Step 2: Compare this value to your loan balance. If the car is worth more than the loan, great! You can sell it for the market value, pay off the loan balance, and pocket the difference.
- Step 3: Once the loan is paid off, the lender will release the lien, and you’ll be free to transfer ownership to the buyer.
Real-World Example: Let’s say you have a loan balance of $8,000, but your car’s market value is $10,000. You sell the car for $10,000, pay off the $8,000 loan, and walk away with $2,000 in your pocket.
2. Selling the Car for Less Than the Loan Balance (Underwater Loan)
If your car is worth less than the loan balance—commonly referred to as being “underwater”—the process becomes a bit more complicated. You’ll still be able to sell the car, but you’ll need to find a way to cover the difference between what you owe and what the car is worth.
Here are some options if you find yourself in this situation:
- Option 1: Pay the Difference Yourself
If you can afford to pay the difference, you can sell the car and cover the remaining balance out of pocket. After the sale, you’ll pay off the loan in full and still transfer the title to the new owner. - Option 2: Roll the Loan into Your Next Car Purchase
Some dealerships will allow you to roll your outstanding loan balance into a new car loan. This means you can sell your current car and take out a new loan for another vehicle, which includes paying off the previous car loan. - Option 3: Negotiate with the Lender
If you’re in financial trouble and can’t afford to pay off the difference, it may be worth reaching out to your lender. Some lenders may allow you to negotiate a settlement or restructure the loan to make the situation more manageable.
3. Selling to a Dealer or Cash-for-Cars Service
Another option for selling a car with an outstanding loan is to sell it directly to a dealership or a cash-for-cars service. These companies specialize in buying cars in all conditions, including those with existing loans. However, the process will depend on the loan balance compared to the car’s value:
- Dealerships: If you owe less than your car’s value, the dealership will pay off the loan and give you the difference as a trade-in or offer you cash. If you owe more than the car is worth, they may work with your lender to handle the balance and may offer you a new car with a rolled-in loan.
- Cash-for-Cars Services: If your car is worth less than the loan, some cash-for-cars services can help facilitate the transaction by paying off the loan directly and handling the paperwork for you. If your car has significant value, they’ll pay you the difference once the loan is settled.
Things to Keep in Mind When Selling a Car with a Loan
1. Lien Release Process
No matter how you sell the car, the lienholder (lender) must release the lien on the vehicle before ownership can transfer to the buyer. This means that if you’re selling privately, you’ll need to coordinate with your lender to ensure that they’re aware of the sale and that the lien is cleared. Some lenders may ask for payment upfront before they release the lien, while others may allow you to finalize the sale after receiving the loan amount.
2. Timing and Coordination
If you’re selling the car to a private buyer, timing is crucial. The lender may not release the title to the buyer until the loan balance is fully paid, which means you’ll need to coordinate the sale and payment between the buyer and lender carefully. You’ll also need to make sure that you get the loan paid off before you can transfer the title to the new owner.
Wrapping Up: Yes, You Can Sell a Car with a Loan!
In short, selling a car with a loan on it is totally possible, but the process requires some extra steps and careful planning. Whether your car is worth more or less than what you owe, there are solutions that can help you sell your car, pay off the loan, and move on with your life. The key is to know your options and make sure you handle the necessary paperwork properly.
If you’re feeling overwhelmed or don’t know where to start, you can always reach out to a trusted dealership or cash-for-cars service for assistance. They can guide you through the process and help you get the best deal possible.
Selling a car with a loan doesn’t have to be stressful—just take it step by step!
If you are in Dingley Village, Victoria 3172, and looking for a cash for cars service, this is the best way to visit us.
Top One Cash For Cars
7 Grant St, Dandenong VIC 3175
0410 009 943