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Are you thinking about selling your car, but still have a car loan out on the vehicle? You’re not alone. Many car owners are in this situation and wonder how to navigate the process.

Selling a car with an outstanding loan might seem complicated, but it’s entirely doable. However, it requires a bit more legwork and patience than a straightforward sale.

This guide will walk you through the essential steps to ensure a smooth car-selling transaction, even with a loan in the equation.

How to sell a car with a loan in 4 steps 

The majority of Americans (85%) purchase a car with financing.¹ If you’re looking to sell a car you still owe money on, the process involves a few main steps. Here’s what you need to know about how to sell a car with a loan:

  1. Request the “payoff amount” from your lender: The first step is to find out exactly how much you need to pay off your loan in full. This amount might be higher than your current balance due to interest and fees. Your lender may retain possession of your car title until you fully pay off your loan.²
  2. Determine your car’s value: Use online tools and resources, such as Edmunds and Kelley Blue Book, to assess the market value of your car. You’ll need to input information on your car’s make, model, year, and condition. Knowing your vehicle’s worth will help you set a realistic selling price for what offer you’ll accept from a dealer.
  3. Complete your car sale: You can sell your car privately or trade it in at a dealership. You might make more money if you sell privately, but working with a dealer can be more convenient, with fewer steps. Whatever you choose, your lender can help you complete the transaction and sign over the title to the car’s new owner. Afterward, the buyer will head to the DMV to get a new registration and title for the car.

For a detailed understanding of auto loans and calculations, try our auto loan calculator.

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How equity impacts selling your car with a loan

Whether you’re exploring how to privately sell a car with a loan or how to sell a car to a dealership when it’s still being financed, here are some possibilities you might have to deal with when selling a financed car.

Positive equity

“Equity” is the difference between the car’s value and how much you owe on your loan.

If your car’s value exceeds the loan balance, you have positive equity and are in a good position. For example, let’s say you owe $5,000 on your loan and can sell your car for $11,000. You can put the excess amount (in this case, $6,000) toward your next vehicle or pocket it as profit.

Negative equity

If you owe more on your car than the car is worth, you have negative equity. This position is complicated since the car’s sale won’t be enough to cover the remaining balance of your loan. You may be able to negotiate with your lender but will likely need to cover the difference.

Let’s say, for example, that your car is worth $10,000, but you still owe $12,000 on your loan. You’ll have to cover the remaining $2,000 out of pocket or with a personal loan or other financing option to pay off your auto loan and get the title to your car.

It could make sense to sell a car with negative equity if the car’s in bad shape and would end up costing you a lot in repairs to keep it. You might also save money overall if you get a much less expensive vehicle or are able to forgo having a car entirely.

Trade in your financed vehicle

Some dealerships accept trade-ins with outstanding loans and can handle the loan payoff process. You may prefer a trade-in to keep the transaction simple, though you could potentially earn more with a private sale.

If you have negative equity on your car, the dealer may offer to add the amount to the loan for your next vehicle. That way, you can roll it into your next auto loan without paying the full amount upfront.

However, be cautious with this approach because taking out a bigger loan means you’ll pay even more in interest and other fees.

Refinance your auto loan

If reducing your monthly car loan payments is your top priority, you could accomplish this by refinancing your loan rather than selling the car. Refinancing involves exchanging your current auto loan for a new loan, ideally with a better interest rate.

You can also choose new repayment terms, like a longer term, to have more affordable monthly payments. A longer term, however, will cost you more in interest over the long run.

Steps to take when your bank requires a payoff before a vehicle sale

Your lender may insist on a loan payoff before transferring the title. In this situation, consider these steps:

  • Explore auto loan refinancing: A new loan with better terms might pay off your existing loan, making the sale easier.
  • Consider a personal loan: If refinancing isn’t an option, a personal loan could cover the payoff amount. However, you’ll still have to pay back the loan with interest.
  • Use your savings: Paying off the loan with savings can speed up the sale process and help you avoid taking on additional debt. Only consider this option if you have a comfortable amount of savings, though, and won’t drain your emergency fund.

Learn about how to pay off your car loan early, too, to make sure you’re completing all the necessary steps.

It's possible to sell a car you owe money on

Selling a car with a loan adds an extra layer to the selling process, but is not impossible. Remember, the key is to clear the loan efficiently and get a fair deal for your vehicle, whether you sell your car to a private buyer or trade it in at a dealership. You might also compare leasing vs. buying a car to decide which approach would be the better fit for your budget.

FAQs

Does selling a car with a loan hurt your credit?

Selling a car with a loan will not hurt your credit, as long as you don’t miss payments on your car loan. If you do miss payments, your lender could report that to the credit bureaus, which could negatively impact your credit score. Make sure you’ve paid off your car loan in full before you stop sending payments to your lender to protect your credit.

Can you transfer the title of a financed car?

Yes, you can transfer the title of a financed car, but the loan must be paid off first, either by you or the buyer.

Can someone take over my car loan?

Some lenders allow someone else to take over your car loan, but you’ll need to get approval from your loan provider, and the new borrower will need to get a credit check.

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¹ Information from PIRG’s Driving Into Debt as of April 11, 2024: https://pirg.org/resources/driving-into-debt-2/

² Information from Car and Driver's When Financing a Car, Who Has the Title? as of April 11, 2024: https://www.caranddriver.com/auto-loans/a32780457/when-financing-a-car-who-has-the-title/

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