If you are ready to sell your automobile but are still paying payments on it, you may be asking “how to sell a car with a loan”. In a nutshell, you need to pay off the loan before the lender will release the title, and ownership of the vehicle may be transferred to the new owner.
This is true regardless of whether the new owner is a private buyer or a dealer who is accepting the car as a trade-in. Negotiation is essential in every situation if you want to receive the best price for the used automobile you’re selling so that you can at least get closer to paying off the loan.
In this article, we will be discussing in detail how to sell a car with a loan.
Key Differences Between a Loan Car and a Paid-off Car
The main difference between a loan car and a paid-off car is the ownership of the car. A loan car is a car that is financed by a lender and is not yet fully paid off. The lender holds a lien on the car, meaning that the car is not yet fully owned by the borrower. On the other hand, a paid-off car is a car that has no outstanding debt and is fully owned by the borrower.
Here are a few key differences between loan cars and paid-off cars:
- The lender holds a lien on the car until the loan is fully paid off.
- The borrower is required to make monthly payments to the lender to pay off the loan.
- The car’s title is not transferred to the borrower until the loan is fully paid off.
- Defaulting on the loan may result in the lender repossessing the car.
- The car is fully owned by the borrower and there is no outstanding debt on the car.
- The borrower is not required to make monthly payments to a lender.
- The car’s title is transferred to the borrower.
- The car can be sold or traded in at any time.
In summary, a loan car is a car that is being financed by a lender and is not yet fully paid off, while a paid-off car is a car that has no outstanding debt and is fully owned by the borrower.
4 Steps to selling a car with a loan
There are several things you need to know and a few actions you should do when selling a vehicle that has a loan, regardless of whether you’re selling the car to a private party, trading it in, or selling it to a dealer outright. Below are the four steps for “how to sell a car with a loan”.
Determine the value of your vehicle
Start by calculating the current market value of your automobile using a site that values vehicles. The websites will request basic information about your automobile, such as its year, make, model, general condition, and ZIP code.
In order to calculate a valuation, some websites may additionally need the license plate or vehicle identifying number (VIN). Be truthful while evaluating the situation.
You could have become used to ignoring little imperfections in your automobile, such as a tear in the seat or tiny damage in the fender, but the buyer will see these issues and may give the car a lesser value than you anticipate.
The amount of money you earn on the sale will depend on how you want to sell the vehicle. For instance, if you sell your automobile to a private person rather than trading it in with a dealer, you’ll probably receive more money for it.
Estimate The Amount Of Your Payoff
Request a repayment amount from your lender; it will probably be different from your present loan total. The payback amount comprises the loan total, interest accrued up to the designated date, and applicable fees. Depending on the lender, payment amounts are normally valid for 10 days. You should be able to obtain the payback information over the phone or through the website of your lender. Before you pay off your vehicle loan, make sure to read the Truth in Lending Act statement on your loan contract or inquire with your lender whether there is a prepayment penalty.
Understand Your Equity
You can grasp your equity in the automobile after you are aware of the worth of the vehicle and the payback sum. It is the discrepancy between the car’s value and the payout sum. Equity may be either beneficial or negative.
If you have positive equity, your automobile is worth more than the amount owed on it. You have $2,000 in positive equity if your automobile is valued at $15,000 and your loan debt is $13,000.
Your automobile has negative equity if its value is lower than the amount owed. On an automobile, it’s also often referred to as being submerged or upside down. If the automobile is only worth $13,000 but you owe $15,000 on the loan, you will need to find an extra $2,000 to pay off the loan.
Consult Your Lender About The Sale
Consult with your lender before putting your automobile up for sale. To finalize the sale, you must be aware of your car’s equity status and the necessary payback amounts.
Selling a Car With Positive Equity
When selling a car with positive equity, it means that the value of the car is greater than the outstanding loan balance on the car. This can be a good situation for the seller, as they will be able to use the positive equity to pay off the loan and potentially make a profit on the sale. Here are the steps for selling a car with positive equity:
Determine the value of the car: You can use online resources such as Kelley Blue Book or NADA Guides to get an estimate of the car’s value.
Check the remaining balance on the loan: Contact the lender to find out the remaining balance on the loan.
Negotiate the sale: Once you have the value of the car and the remaining balance on the loan, you can negotiate the sale price with the buyer. Keep in mind that the sale price should be higher than the remaining balance on the loan to cover any additional costs or fees.
Pay off the loan: Once the sale is complete, you will need to pay off the remaining balance of the loan with the proceeds from the sale.
Notify the lender: Once the loan is paid off, you will need to let the lender know that the loan has been paid off and the car has been sold.
Transfer the title: Once the loan is paid off and the lender is notified, you can transfer the title to the new owner.
Keep in mind that in some cases, a lender may have a “payoff” amount that is different from the remaining balance on the loan, it is good to check with the lender to get the exact amount that needs to be paid off and ensure that you are getting the best deal.
What To Do If The Bank Wants You to Payoff the Loan Before You Sell Your Car?
When a bank wants the payoff of a vehicle loan before you sell the vehicle, it means that the bank is requiring the loan to be paid off in full before the title can be transferred to the new owner. This can be a bit more complicated than selling a car with positive equity, but it is still possible to sell the car. Here are the steps you can take when the bank wants the payoff before you sell your vehicle:
Determine the payoff amount: Contact the bank to find out the exact payoff amount of the loan. This may be different from the remaining balance on the loan.
Negotiate the sale price with the buyer: Once you have the payoff amount, you can negotiate the sale price with the buyer, keeping in mind that the sale price needs to be high enough to cover the payoff amount, as well as any additional costs or fees.
Pay off the loan: Before the title can be transferred to the new owner, the loan must be paid off in full. You can use the proceeds from the sale to pay off the loan.
Notify the bank: Once the loan is paid off, you will need to let the bank know that the loan has been paid off and the car has been sold.
Transfer the title: Once the loan is paid off and the bank is notified, you can transfer the title to the new owner.
Close the deal: Close the deal with the buyer and make sure all the paperwork is completed.
Keep in mind that if you are unable to find a buyer who is willing to pay the payoff amount, you may have to cover the difference out of your own pocket. It is important to consider these potential costs when negotiating the sale price with the buyer.
Frequently Asked Questions (FAQs)
Is buying a car with a loan safe?
Buying a car with a lien, but it can be a bit more complex than buying a car that is fully paid off. Here are the steps you can take to purchase a car that is already on loan:
Check the title: Make sure the seller has the title to the car, as the lender will still have a lien on the car until the loan is paid off.
Contact the lender: Get in touch with the lender to find out the remaining balance on the loan and the terms of the loan. Make sure you understand the terms and that you are comfortable with them.
Negotiate the sale: Once you have all the information, you can negotiate the price of the car with the seller. Keep in mind that the price of the car will need to be high enough to cover the remaining balance on the loan, plus any additional costs or fees.
Pay off the loan: Once the sale is complete, you will need to pay off the remaining balance of the loan to the lender. You will also need to arrange for the transfer of the car’s title to your name.
Notify the lender: Once the car is sold, you will need to let the lender know that the car has been sold and that the loan has been paid off.
It’s important to keep in mind that buying a car that is already on loan can be risky, as you may end up paying more for the car than it is worth due to the remaining balance on the loan. Additionally, if the previous owner defaults on the loan, the lender can repossess the car, and you could lose it.
It’s always a good idea to consult with a financial advisor or a lawyer before making a big financial decision.
Can you sell a car with a loan?
Yes, it is legal to sell a car with a loan. However, the legal process of selling a car with a loan on it can vary depending on the laws of the state you live in and the terms of your loan agreement.
When you sell a car with a loan, you are responsible for paying off the remaining balance of the loan. This means that the proceeds from the sale of the car must be enough to pay off the loan, or you will need to come up with the remaining amount yourself.
In some states, it may be required that the lender be notified and give their consent before the car can be sold. Also, it’s important to check with your lender to see if there are any restrictions or requirements for selling a car with a loan, such as a specific process that must be followed or a minimum amount that the car must sell for.
Also, it is important to note that the seller is liable for any unpaid balance of the loan if the new buyer does not pay it off.
How do I transfer the title of my car?
The process for transferring a car’s title can vary depending on the state you are in, but generally, it involves the following steps:
Gather necessary documents: You will need to provide the current title, as well as proof of insurance, registration, and a valid ID.
Complete the title transfer form: You will need to fill out a title transfer form, which is usually available from the Department of Motor Vehicles (DMV) or another relevant government agencies.
Pay any necessary fees: You will need to pay any fees associated with the title transfer, such as title transfer fees and taxes.
Submit the required documents and fees: Submit the completed title transfer form, necessary documents, and fees to the DMV or other relevant government agency.
Notify the lender: If the car is financed and the loan is not paid off, you will need to notify the lender of the title transfer and provide them with a copy of the new title.
Wait for the new title: Once the title transfer is complete, the DMV or other relevant government agency will mail the new title to the new owner.
Sign the title over Once you receive the new title, sign it over to the new owner.
Remove the license plates: Make sure to remove the license plates from the vehicle before you hand it over to the new owner, as the plates will need to be returned to the DMV or other relevant government agency.
It’s important to note that some states might have different regulations, like electronic title transfer, or might require a smog check, so it’s always good to check with the local authorities to know the specific requirements of your state.
The Bottom Line
In conclusion, selling a car with a loan can be a bit more complicated than selling a fully paid-off car, as the loan must be paid off before the title can be transferred to the new owner. However, by determining the payoff amount and finding a buyer willing to pay that amount, the process can be completed smoothly.
It’s important to also check with the lender about any specific requirements or procedures that may need to be followed. It’s also advisable to consult with a legal expert to ensure everything is done correctly and avoid any potential legal issues.
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