How to Sell a Car You Haven’t Paid Off

August 24th, 2018 by

How to Sell a Car You Haven’t Paid Off

Most of the time,when you take out a car loan the bank takes your title. Essentially, that means that they own your car until you pay off the balance of your loan. Does that mean you can’t sell it before you pay it off? Of course not. The sale of vehicles that aren’t completely paid off happens all the time, just like houses that have mortgages are sold every day. In this article we give you the ins and outs of this kind of transaction, so that you can make sure it goes as smoothly as possible.

Know Your Loan Balance

The first thing to do when you’re ready to sell a car that is visit your bank or review your online statement and get the dollar amount of your loan balance. Specifically see if you can get a payoff total, which may be a little higher than the loan balance due to payoff penalties or projected interest. If you have the means to pay off the loan then and there, go ahead and do so, especially if you have a sure buyer all lined up. It’s okay, and probably a safer bet, to wait though. For right now you just need the total of your loan.

Dealer or No?

Next step is deciding whether you want to sell to a car dealership or private individual. You’ll find advantages and disadvantages either way. If you sell to a dealer, you’re looking at convenience and a tax break. Dealers are used to buying vehicles that have a lien, while some inexperienced buyers might be a bit squeamish about buying a car with money still owed on it.

Obviously, the convenience comes from selling a car at the same time you buy one. This time-saving practice is a big bonus if you want to drive your new car today and eliminate any money-starved time between buying a new car and selling the old one. The tax break comes in because you pare two transactions down to one. That usually means, unless you live in one of the rare states that don’t have sales tax on automobiles, that you pay tax only once.

If you sell the vehicle yourself, you’ll probably spend a little more time looking for a buyer. That might delay your new car purchase if you need that cash before buying. Some buyers might be nervous about purchasing a car that’s partially owned by the bank. It’s important when advertising to be upfront about the loan. For most people, that shouldn’t be a problem, as these types of sales are common. When making the purchase, draw up a bill of sale. Once you have the cash in hand, pay the loan off at the bank. Once your loan is paid off and you receive the clean title, send the title to the new owner as soon as possible. You can also conduct the transaction at the bank, which we recommend for everyone’s peace of mind. That way, the buyer cuts two checks, one to the bank for the amount of the loan and another to you for the remaining amount for the car.

What If My Car is Upside Down?

You might find that you owe more on your car than any dealership or individual buyer is willing to pay for it. When that happens, we say that the car is upside down or underwater. In that case, you will be responsible to settle the difference. The dealership will give you an estimate for the car, subtract the outstanding amount of the loan, and ask you to pay the difference. They can also sell you a new car as part of the day’s transaction. Your best bet is to take it to a dealership, since they’ll probably give you the best deal when there’s the potential to sell you a car in the process.