Can You Sell a Financed Car?

WHAT IS CAR FINANCING?

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First, it’s important to understand how car financing works. With car financing, you are essentially taking out a loan to pay for a vehicle, agreeing to pay the loan back over time with interest. Car financing is a great option for people who are looking to buy a new car but don’t necessarily have all of the necessary money saved up.

In addition, many locations provide financing despite bad credit, which isn’t always the case for car leases. However, paying off a car finance loan takes time, and you may want to sell your car before that time arrives. This leaves people wondering if they can sell a financed car.

Can you sell a car without a title?

A title serves as proof of ownership, and in most cases, you can't sell a vehicle without proof of ownership. If your title was lost, damaged, or stolen, you should replace it. If the vehicle is abandoned, contact your state's department of motor vehicles to find out how to proceed. Some old vehicles may have a bill of sale rather than a title, which can also be used to sell a vehicle.

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Enlistyour lender in the sale

Once you know the payoff on the car loan, and have decided to go ahead with the sale, you should get the lender involved in the sales process. They hold title to the vehicle, and you can’t sell the car without it.

Ask your car lender the best way to proceed so that you can pay off the loan and deliver the title to the buyer in the shortest time possible. This is not an uncommon occurrence, so the lender should have procedures in place.

OPTIONS FOR SELLING A FINANCED CAR

If you decide that you want to sell your financed car, the next step is to figure out how to sell it. Your best option is to try and pay off the loan first. If you only have a little bit left on your finance payments, paying them off can help you sell your vehicle for more.

However, some people do not want to wait before selling off their financed vehicle. If you’re one of them, you should look to sell your vehicle to a dealership rather than privately. The reason for this is that dealerships buy financed vehicles all the time. They are more equipped to handle the process and will make everything much smoother. In addition, if you’re looking to buy another vehicle, you can do this right at the same dealership and often factor the cost of the sale into the new car purchase.

If you want to sell your financed car, look for a local dealership. They make it easy when it comes to car loan terminations and will often offer you a price close to the car’s true value. They can even work with you if you’re dealing with negative equity.

Selling with positive equity

Positive equity means you may walk away from the sale with some money! For example, if your car is worth $10,000 and you owe $7,000, you can expect to take home the $3,000 difference.

In a sale to a private party or dealership, you could get the money in one of three ways:

  1. The buyer pays the lender the full amount and then the lender pays the extra to you.
  2. The buyer makes two payments, one to the lender and one to you.
  3. The buyer pays you the full amount and you pay the lender the payoff amount.

If you trade in your car to a dealership, you could use the positive equity as a down payment on buying another vehicle instead of taking it as cash.

Because it’s easier to sell a vehicle when you have the title on hand, you may consider buying the car with your savings or a personal loan before you sell it to its next owner. Unsecured personal loans have competitive rates for borrowers with good credit (FICO Scores of 660-plus) and as soon as you sell the car, you can pay off the loan, meaning you could pay very little in interest and have a free and clear title to show buyers. We recommend this only if you have a high credit score, are confident that the car can sell quickly and are comfortable with making the new payment for a little while in case the car doesn’t sell immediately.

What to do when the bank wants the payoff before you sell your vehicle

A bank may want the car loan payoff amount before you’re able to sell it. This is very common, but it does mean you’ll need to do more legwork. Luckily, there are several options you can choose from, though you’ll need to research them to determine which might be the best for you.

  • Refinance. Refinancing your car loan, rather than selling your car, could be a great option if you need a lower payment. Based on your credit, you may also be able to qualify for a lower APR, too. Just be careful not to extend your car refinance loan for too long. A longer term can mean that you end up paying more in interest over the life of the loan.
  • Get a personal loan. A personal loan can be used for many things, including paying off your car loan. However, since they’re unsecured loans, which do not require collateral, they tend to have much higher interest rates. Because unsecured loans have higher APRs, this can also mean you’ll have higher monthly payments with these types of loans. Your car could also be repossessed if you can’t make your payments.
  • Use a home equity line of credit (HELOC). The monthly payments on a home equity line of credit (HELOC) may be lower than the payments on a car loan, so it could make sense in some situations to consider taking out one of these loans to pay off the debt for your car. HELOCs tend to have lower monthly payments for two reasons: The term can be much longer than a car loan, and the loan collateral is a house, which typically appreciates in value. However, the cons to these factors are, respectively, a longer term loan that can bring more accumulating interest and cause more debt in the long run, and that you could lose your house if your HELOC payments aren’t made.
  • Use your savings. This is a repeat option but, if you have extra savings, you could use it to pay off your car loan and not take on more debt. However, not everyone has extra money to use, so pulling from a savings account is not always an option.

Step 3: Provide a Clear Title

Transferring the title to your buyer completes the sale and allows the buyer to register the vehicle in his name. Transferring the title generally involves signing the back of the title to indicate that you are giving up ownership to the buyer.

You also may need to supply the buyer with a bill of sale, which contains seller contact information, sale date, sale price, vehicle odometer reading, and signatures of both parties. Specific requirements vary by state. In Alaska, for example, the title serves as a bill of sale and gives the buyer everything needed to register the vehicle in their own name.

To prove to the seller that you paid off the car, obtain from the lender a signed lien release or a letter on the lender's letterhead stating that it holds no financial interest in the car.

Buyers generally won't be willing to pay unless you have a clear title you can furnish during the sale. A clear title is one that is clear of any claims. You won’t have a clear title if you still owe money on the car. If the car is still financed, the lienholder's name will appear on the title to indicate its financial interest in the car.

If all else fails, a trade-in is easier

If this all looks too complicated for your taste, the easiest route would be to simply trade the car in as a down payment on your next vehicle. The downside of this, of course, is that trading will get you less money than you can get from selling it yourself. If you have enough equity in the vehicle, and prefer that sort of convenience, by all means trade the car in.

Read more: Get 21% more when you trade or sell your used car

Another option is to simply sell your car to a dealer. Some dealers will purchase cars from private parties, even if those parties don’t buy a car through the dealer. One prominent example is Carmax. They will purchase any type of vehicle, and there is no obligation on your part to purchase a car from them. The process will be quick and clean, and you will walk out with a check.

Just always remember that selling to a dealer is not like selling to a private party. They simply will not pay you as much for the car as an individual will. For that reason, you owe it to yourself to try and sell your car privately first.

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