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How to Sell?

How to Sell a Car Privately with a Loan?

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Written by: Michael Becker
Last Updated:

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Quick Answer:

To successfully sell a car privately when it’s still under a loan, begin by precisely determining the remaining balance on your loan, including any additional fees. Then, assess the current market value of your car to ascertain whether you have positive or negative equity.

In case of positive equity, you can settle the loan with the proceeds from the sale.

However, if you’re facing negative equity, you will need to personally cover the shortfall to sell the car and completely pay off the loan.

Key Takeaways:

  1. Equity Consideration: Assess if you have positive or negative equity in your car; this influences your strategy for covering the loan with the sale proceeds.
  2. Loan Transparency: Clearly inform potential buyers about the loan status to ensure a smooth and honest transaction.
  3. Bill of Sale: Complete a Bill of Sale to legally record the sale and protect both parties against future liabilities.

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How to Sell Car Privately with a Loan:

1. Find Out Your Payoff Amount

The payoff amount represents the total cost required to own your car fully. You can find out your payoff amount by reaching out to your lender.

Be aware that the payoff amount might differ from your current balance, as it encompasses the following:

  • Loan balance
  • Interests up to a specific date
  • Any related fees

Typically, the payoff amount is valid for a period of 10 days, but this can differ between lenders. To obtain this information, you can either call your lender or request it via their website.

It’s also advisable to review the Truth in Lending Act disclosure for your loan amount and inquire with your lender about any potential prepayment penalties.

2. Find Out Your Car’s Value

To determine your car’s value, you should check car valuation websites and browse online listings.

Best car valuation websites:

You must supply details like your car’s make, model, trim, and a description of its condition. These tools typically offer a spectrum of values for private sales and trade-ins.

Best online listing websites:

Look through listings to locate a car similar to yours and compare based on make, model, mileage, and condition.

how to price a car to sell

3. Consider Your Car’s Equity

Equity in a car is determined by the payoff amount and its value. It refers to the difference between the car’s worth and the payoff amount.

Knowing your equity will indicate whether you’ll earn a profit from the sale or if you’ll have to cover additional costs. 

Positive equity:

Positive equity occurs when the value of your car is higher than the payoff amount.

Example: your car’s value is $16,000, and your loan balance is $13,000. This means the car has $3,000 in positive equity.

Negative equity:

Negative equity means your loan amount is greater than the vehicle’s value. This is also known as being “upside down” on your loan. 

Example: your car’s value is $13,000, and you owe $16,000. This means the car has $3,000 in negative equity.

You will be responsible for paying this difference to settle the loan and privately sell your car. 

4. Selling a Car with a Positive Equity

If you have positive equity, the selling process is rather easy:

  1. The buyer pays you the full amount.
  2. You pay off the loan.
  3. The lender gives you the car’s Title.
  4. You transfer the Title to the buyer.

Before moving forward, it’s advisable to consult with your lender about the sale process. They can offer detailed instructions or requirements to facilitate a smooth and efficient transaction.

Ensure that you sign the Bill of Sale once you receive payment from the buyer. This will foster trust with the buyer and safeguard you from any future liabilities.

5: Selling a Car with a Negative Equity

If your car has negative equity, you’ll have to cover the difference between your car’s value and the loan payoff amount.

In this situation, you have a few options to consider:

  • Cover the difference out of pocket: If you have flexibility in your budget, you can bridge the gap between your car’s value and loan balance and pay the difference.
  • Wait to sell: postpone the sale and make extra payments toward your car loan until you have positive equity.
  • Refinance your car loan: as long as you secure a lower interest rate than what you’re currently paying, it can help you build equity faster.

6: Disclose Loan Status to the Buyer

Disclose the loan status during the initial communication with the buyer to save time and identify serious buyers.

Some buyers might be skeptical about buying vehicles with loans, and informing them of your loan status and the steps you’ll take to settle the loan can alleviate their concerns. 

Getting your bank or financial institution involved can also give your buyer the confidence that the sale is being completed on the right track.  

7. Take Care of the Paperwork

As the seller, it is your responsibility to collect the required paperwork to finalize the sale.

1. Gather required paperwork

The list of required paperwork varies by state, but apart from the Certificate of Title (required nationwide), you might need to provide additional paperwork:

  • Bill of Sale
  • Emissions test
  • Vin inspection

It is also recommended to present the buyer with service records, VIN check and owner’s manual as it might help to prove your asking price.

2. Sign the Bill of Sale

You should sign the Bill of Sale even if the state DMV does not require it. This document will serve as a legal document protecting you from liability for any accidents or other problems that occur after the sale.

3. Transfer Title

After you pay off your loan, the lender will provide you the Certificate of Title.

If it is not signed by the lender itself, sign it yourself and along with the buyer take it to the DMV office to complete the transfer.

The buyer pays transfer fees. You will only need to provide your ID or driver’s license to prove your identity.

4. Inform DMV and cancel insurance

Notify DMV about the sale to protect yourself from liability for any parking tickets, accidents or other violations made by the new owner.

This will also cancel your registration, preventing you from being charged registration fees.

Contact your insurance company to cancel your car insurance policy.

How Long Does It Take for the Lender to Release the Title?

It varies, but typically, it takes a few days to a few weeks. Check with your lender for specifics.

Can the Buyer Directly Pay Off the Remaining Loan?

Yes, but it’s crucial to ensure proper communication and paperwork during the process.

How Do you Ensure the Buyer the Loan is Paid off?

You can arrange a meeting at your lending bank. The buyer can pay off the loan directly and then pay you any remaining amount from the agreed-upon sale price.

Also, you can sign and notarize the Bill of Sale, proving the payment occurred.

Ask the lender to write an official letter stating the loan has been paid off.

How Does the Title Transfer Work when Selling a Car with a Loan?

The process of transferring the Title is the same as selling a financed car. However, to be able to transfer the Title, you must pay off the loan first, as the Certificate of Tile will be in the name of the lender until you do so.

What is a Lien Release, and Why is it Important?

A lien release is a document that shows a loan on a car has been paid off, and the lender no longer has any interest in the vehicle.

It’s important because it allows the title to be transferred to a new owner, free of any liens.

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Michael Becker


About the author:

Michael Becker is a car enthusiast and expert who has been working in the automotive industry for over 15 years. He started his career as a salesperson at a local dealership, where he learned the ins and outs of the car market. Then he moved on to flipping cars for a profit.

Michael has also helped many of his relatives and friends to sell their cars, using his knowledge and skills to get them the best deals. He will guide you through the process and help you avoid the common pitfalls.

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