Loans
4 min read
You can sell a car while you still owe money on it. The lender has a claim on the car until the loan is paid, so the sale has one extra step: the loan is paid off from the sale money before the title is free to change hands.
Start with your payoff amount
Your payoff amount is what it takes to close the loan. It can differ from the balance on your statement or coupon book, because of the way interest is calculated, unpaid late fees or other charges. Ask your lender for a payoff quote and note the date it is good through.
Work out your equity
Equity is what a buyer pays for the car minus your payoff amount.
Positive equity: the car is worth more than you owe. The loan is paid from the sale and you keep the rest.
Negative equity: you owe more on the loan than the car is worth. To sell, you need to cover the gap.
An example with round numbers
This example is for illustration only. The figures are made up and it is not an offer.
| Positive equity | Negative equity |
|---|---|---|
Offer for the car | $25,000 | $25,000 |
Loan payoff | $18,000 | $28,000 |
Result | You receive $7,000 | You pay $3,000 |
Who holds the title
While you have a loan, the lender is the lienholder. In California, when a car with a lienholder is sold, the seller or lienholder signs the title. When the loan is paid, the lender releases its lien. In Texas, for example, the lienholder has 10 days after receiving payment to release it. With a paper title, the lender mails the title to you. With an electronic title, the state converts it to a paper title and mails it, with no action needed from you.
This is why the payoff comes first. Until the lender is paid, no buyer can get a clean title.
Three ways to sell a car with a loan
Trade it in at a dealer
When you trade in a car that isn’t paid off, the dealer pays off your old loan as part of the deal. It is simple, but watch for negative equity. The FTC warns that some dealers say you won’t be responsible for the rest of your old loan, then roll that balance into your new loan, so you still pay it. A rolled-over balance makes the new loan more expensive.
Sell to a company that pays your lender
Some companies that buy cars pay your lender directly and pay you any equity. Ask exactly when the lender is paid and how you will know it happened.
Sell it privately
A private buyer can’t get a clean title until your loan is paid and the lien is released. You can pay off the loan first and then sell, or arrange with the buyer and your lender to complete the payoff together. Either way you handle more steps yourself.
Be careful how you are paid. A common scam is a check for more than the price, with a request to send the difference back. Banks have to make deposited money available quickly, so seeing the funds in your account doesn’t mean the check is good. If it bounces, you owe the bank.
If you have negative equity
You have three choices:
Pay the gap at the sale. You cover the difference in cash and leave with no loan.
Wait. Keep paying the loan down until the payoff falls below the car’s value.
Roll it into a new loan. This works, but you pay interest on the old balance as well as the new one. Ask the dealer to show you how the negative equity is handled before you sign.
Check the loan is closed
After any sale, confirm the loan is actually paid. The CFPB suggests waiting about a week and then contacting your old lender to check that the loan has been paid off. If it hasn’t, contact whoever was supposed to pay it. If that doesn’t fix it, you can file a complaint with the FTC or the CFPB.
Keep your bill of sale, the payoff confirmation and any letters from the lender until the lien release is complete.
What to have ready
Your lender’s name and your loan account number
A recent payoff quote, or permission for the buyer to request one
Your photo ID and every key
Your registration, since the lender may hold the title
How Auto Exit handles a loan
Tell us your lender when you start. Your offer comes in about two minutes, with the math laid out: our offer, minus your payoff, equals what you receive. The offer is held for 7 days.
At pickup, we pay your lender directly and pay you any equity by bank transfer before the car leaves. There are no fees. If you owe more than our offer, you see the gap before you agree to anything, and you can decide whether selling now makes sense.
