How to Sell a Financed Car You Still Owe Money On

Just as people sell homes with outstanding loan balances, you might find yourself wondering how to sell a financed car without paying it off. Here's how.

Michelle Black | 

May 4, 2022 | 4 min read

Shutterstock

Just as people sell homes with outstanding loans, you might one day find yourself wondering how to sell a financed car without paying it off. Selling a car that you still owe money on can be complicated, but it's possible. Once you understand the process, you should be better prepared.

4 Steps to Selling a Car When You Still Have a Loan

You can sell a vehicle in many different ways. You can sell it to a private party, sell it to a dealer, or trade it in and try to get a credit toward a new car purchase. In any of these circumstances, however, you'll need to take a few key steps if you're trying to figure out how to sell a financed car without paying it off first.

Here are the four main steps to selling a vehicle you still owe money on:

Gather Information About Your Loan

Before you talk to someone about purchasing your vehicle, you'll want to figure out how much money you still owe. You can gather this information by asking your lender for the payoff amount on your loan.

The payoff amount is how much you need to pay to wipe out the balance on your existing auto loan. The figure may differ from the balance listed on your loan statement due to factors like interest calculation, prepayment penalties, and more.

Calculate Your Vehicle Equity

Next, use a pricing guide to find the estimated value of your vehicle. This amount may differ depending on whether you want to sell your vehicle to a private party or trade it in with a car dealer. Once you have your estimated vehicle value, you can use the simple formula below to calculate the equity in your car:

Vehicle Value – Payoff Amount = Vehicle Equity

If your vehicle equity is a positive number, you may be able to sell your car to someone else and make enough to pay off the loan (and potentially put some extra money in your pocket). Negative equity means your vehicle's value isn't high enough to pay off your outstanding loan balance.

If you wish to sell a financed vehicle with negative equity, you'll either need to pay off the remaining loan balance out of pocket or roll that amount into a new loan. It's important to proceed with caution with either approach, especially when it comes to new financing. Deciding to go further into debt can have long-term financial consequences.

If you do decide to take out a new auto loan, a car payment calculator can help you figure out how trading in a vehicle with negative equity could impact the overall cost.

Talk to Your Lender

When you take out a loan to buy a car, the lender is the true owner of the vehicle until you pay off the debt. The lender will also place a lien on the vehicle to protect its investment. You'll need to pay the loan in full before the lender will release the lien and title—allowing you to resell the vehicle to another party.

If you're planning to sell a vehicle that you still owe money on, talk to your lender first to find out how to proceed. Each lender has its own process where this type of transaction is concerned. For example, with a bank or credit union, the lender might have you bring the buyer into your local branch to pay off the loan balance (either in cash or with financing of their own). If the buyer has agreed to pay you more than the payoff balance, they could pay you the remaining amount in a separate transaction.

Check Your Credit Reports

Whether you sell your car to a private party or trade it in for a new vehicle, it's important to follow up afterward and make sure the original loan gets paid in full. The best way to confirm that the loan now reflects a zero balance is to check your three credit reports. You can access your credit reports for free once every 12 months at annualcreditreport.com.

If a lender or credit bureau doesn't update your loan balance to zero after 30 to 60 days, you may want to dispute the error with the appropriate credit reporting agency. The Federal Trade Commission has a helpful guide that walks through the process. If a dispute doesn't resolve the issue, you can submit a complaint to the Consumer Financial Protection Bureau as well.

The Bottom Line

Figuring out how to sell a financed vehicle without paying it off first can involve a lot more legwork than selling a vehicle you already own outright, but it's possible. If you believe selling a vehicle that you still owe money on is the right financial move for you, these steps can make it easier for you to navigate the process.

Michelle Black

Michelle Lambright Black is a leading credit expert with nearly two decades of experience in the credit industry. She's an expert on credit reporting, credit scoring, identity theft, and the intersection of credit and financing. Michelle is also an experienced personal finance and travel writer, with thousands of articles featured in major outlets throughout the U.S.