Sara Routhier, Managing Editor of Features and Outreach, has professional experience as an educator, SEO specialist, and content marketer. She has over five years of experience in the insurance industry. As a researcher, data nerd, writer, and editor she strives to curate educational, enlightening articles that provide you with the must-know facts and best-kept secrets within the overwhelming worl...

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Joel Ohman is the CEO of a private equity-backed digital media company. He is a CERTIFIED FINANCIAL PLANNER™, author, angel investor, and serial entrepreneur who loves creating new things, whether books or businesses. He has also previously served as the founder and resident CFP® of a national insurance agency, Real Time Health Quotes. He also has an MBA from the University of South Florida. ...

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Reviewed by Joel Ohman
Founder, CFP®

UPDATED: Sep 17, 2012

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Despite some common misconceptions, borrowers and car owners may still be able to sell their vehicle even if they still owe money on the auto loan for it.

The first thing borrowers and car owners should do when considering selling their vehicle is to speak with their lender. Auto loan financiers are used to the process and would be able to inform their borrowers of specific policies and guidelines that must be followed. Speaking with a lender prior to selling a vehicle can help borrowers avoid major headaches or disappointments later on.

Selling a vehicle after paying off the securing loan may sometimes be necessary. In order to do this, auto loan borrowers must find out how much money they still owe—in effect, they need to know their remaining balance. Borrowers should ask their lender about how much money is needed to pay off their balance by specifically asking for their “payoff amount.”

A payoff amount is the amount of money a lender needs in order to close an outstanding auto loan. Payoff amounts are usually higher than the amount shown on written or mailed balance statement since payoff amounts are more accurate and up-to-date balance reports. As a result, payoff amounts reveal any and all interest that has accrued since a previously reported balance statement.

So if a borrower gets a balance statement at the beginning of the month and then writes a check at the end of the month, they likely wouldn’t have satisfied the entire balance of their loan since interest would’ve accrued throughout those in between days.

But if a borrower gets a same-day report on his or her balance and immediately writes and turns in a check for that amount, he or she will have satisfied their loan. Since selling a vehicle can sometimes take more than a month, borrowers should not be surprised if the payoff amount fluctuates in the time it takes to make a sale.

If a borrower is unable to afford a payoff amount, then there is another option that may aid a borrower wishing to sell a vehicle that still has an active auto loan attached to it.

Borrowers can opt to conduct the sale of their vehicles within a lender’s office, such as in a bank. That way, a vehicle’s title can be signed over to a new owner while the bank immediately receives their final payment on the original owner’s auto loan. Conducting the sale within the lender’s office with the auto title in hand allows the sale to be legally concluded with the knowledge of the lender. After paying off the balance, the remainder of the sale’s amount would belong to the borrower.

Ideally, borrowers should wait until their loan is paid off to sell their car. After paying off an auto loan, a borrower would have a clear title that could simply be signed over to a new owner making for a far more expedient sale. Some car buyers who want to avoid a hassle will not even consider buying a car that still holds a balance. This makes it important to pay off a car loan even if borrowers feel it may be costly.

Paying off an auto loan is not as costly as some borrowers would think since they will be receiving money once they sell the now fully-owned vehicle anyways. Of course, if a borrower is upside down on an auto loan then they still would be “in the red” after selling a vehicle.

Borrowers can always look into consolidation or personal loans in order to prematurely pay off an auto loan. Sometimes obtaining a new debt to pay off an old one can be profitable if the new debt has a lower interest rate.