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How to Sell a Car With a Loan? 3 Exact Steps

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The content is for informational purposes only. Conduct your own research and seek advice of a licensed financial advisor. Terms.

How to Sell a Car with a Loan?


Selling a car can be a straightforward process when you understand all of the required elements and steps. 

First off, the ease of selling a car depends on core factors such as whether you got the car with a loan or own it fully. Selling an unfinanced car is much easier than selling a financed car. 

Selling a financed car requires clear steps and is dependent on further factors such as whether you are selling to a dealer or private buyer. 

Let’s start by going through the three steps that make up the process of selling a financed car:

  • Get a payoff letter
  • Pay the payoff amount
  • Create a proper title

Step 1: Get a Payoff Letter

Getting a payoff letter is the first step for selling a financed car. This is because the letter is an official document that states the payoff amount, the payments methods and details as necessary, as well as the date at which the payoff amount is still valid. 

It’s noteworthy that the payoff amount is not the same as the amount you currently owe as it includes the interest till the date that you intend to make the payment. 

Contact your lender for the payoff letter as soon as you become interested in selling a financed car. Also, ask for any suggestions on how to sell the car. Your lender could have solutions such as an office for interacting with your prospective buyer. Such an office will inspire the confidence of prospective buyers. 

You should ask for the details of possible payment penalties and the average title processing time after the lien is lifted from the car.

Armed with all these information bits, you can now go to find a way to pay the payoff amount.

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Step 2: Pay Off the Loan

Having gotten all the essential information bits highlighted in step 1, go on to work towards paying off the loan.

Aim to pay off the loan as soon as possible. Paying off the loan will attract buyers and make the sales process particularly smooth. Without paying off the loan, you will not get a clear title and the buyers will not want to buy the car. 

Here are some tips to go about paying off the car loan, in no particular order:

  • Get a loan: You can get another loan to offset the car loan and sell the car quickly. Look out for low-interest loans with a short repayment period. That way, you can easily pay off the loan, get a clear title, and sell off the car without incurring significant extra costs. You can take personal loans from banks and credit unions or explore other non-traditional options such as online lenders. 
  • Research the car’s market value: Research the market value of your car using credible resources such as Kelley Blue Book and National Automobile Dealer’s Association (NADA) Guides. You can also get free car valuation through companies like Peddle and Wheelzy. When you know the current value of your car, you get to make fair negotiations with the lenders and make informed decisions. 
  • Defer the sale: All decisions you make around this period should be backed by proper information. For example, if you have negative equity, deferring the sale could be the only way forward, that is you can’t get money through other means. Having negative equity means owing more than the car’s worth and needing money to achieve positive equity.

Pro tip: If you can’t find money, postpone the sales until you can achieve positive equity.

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Step 3: Get a Clear Title

A clear title inspires buyers’ confidence and will encourage them to buy the car quickly. Get a clear title that indicates that the car is free from all forms of financial claims. 

To convince buyers that the car has no outsider financial interests, you can ask the lender to provide a signed lien release. A letter on the official letterhead paper of the lender will serve similar services too. 

In transferring the title, you are required to sign at its back, to indicate that you’ve given up the ownership of the car. 

Depending on your location, you may be needed to provide a bill of sales for your clients too. The bill of sales has information such as the name and contact details of the seller, vehicle details, and sale date and price. 

A clear title indicates that the car is free of all kinds of financial interests. Get a clear title to show the buyer that the car is no longer financed. Without a clear title, the sale is bound to drag.    

Having highlighted the steps to sell a car with a loan, we now go on how to highlight the tips associated with selling the car to a private buyer or dealer.

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What to Know About Selling a Financed Car to a Dealer


Firstly, you can sell your financed car to a dealer before paying off the loan. Selling a car to a dealer comes in the form of a tradeoff. A tradeoff is typically more straightforward than selling a car to a private buyer. 

If you’ve already paid off your loan, a dealer could complete the tradeoff within 24 hours. They also typically handle all of the associated paperwork. Car dealers carry out tradeoffs quite regularly. 

Along with the upsides of selling a financed car to a dealer, such as ease and speediness of transactions, there are downsides like the associated costs. 

The service comes with a fee and that would reduce your gains from the sale. You would get more money by selling to a private buyer than a dealer. This is the case when you’ve paid off the loan.  

If you are yet to pay off the loan and have negative equity, a tradeoff could mean the transfer of the debt to the new automobile. The debt transfer could lead to future issues and complications. 

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What to Know About Selling Your Car to a Private Buyer


Selling a car to a private buyer comes with the benefit of better gains than are achievable with a tradeoff. It is even possible to sell the vehicle for more than the current wholesale price. 

As mentioned earlier, you could sell a financed car without a title, that is if you’ve not paid off the loan. A buyer could trust you enough to pay for the car without the title. You can then use the proceeds to pay the debt and get a clear title. 

Note that buyers rarely trust sellers enough to pay for vehicles without titles. The buyer may run into issues with law enforcement agents and will be unable to register the car. 

We should also mention an important downside associated with selling to a private buyer: the threat of fraud. 

You can curb fraud by accepting only cash from the buyer or engaging escrow services as middle agents to ensure the legitimacy of the transaction. 

Selling a car to a private buyer also involves visiting the relevant state agency for a proper transfer of ownership. If you sell with a dealership, the dealership typically handles this step and is responsible for applying for the certificate of the title as well as vehicle registration. 

Since you are selling to a private buyer, you’d need to be involved in the application so that you do not incur charges such as new owner fees and accident expenses if a proper transfer of ownership is not carried out. 

When you sell a car to a private buyer, you become heavily involved in the process, in exchange for better proceeds than achievable when selling to a dealership. The process also typically takes longer than selling to a dealership too. 

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