Selling a Car You Still Owe Money On
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UPDATED: Dec 1, 2011
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So you want to sell your car, but your auto loan is still outstanding. It’s not the most ideal situation, but it’s still very manageable and happens far more often than you may expect.
What’s the Remaining Balance on the Loan?
The first step to selling your car that’s still being financed is determining the exact dollar amount remaining on the loan. This is crucial, as it spells out exactly how much you have to make in selling the car.
In unfortunate positions where you car is worth less than the loan amount, this may not be possible. For instance, if you purchased a new car for $10,000, then a month later ran into an emergency, or realized you needed to downgrade, your car’s value has likely depreciated below the balance remaining on the loan. In a situation like this, the borrower needs to weigh the pros and cons of selling his vehicle. If possible, holding onto it until your car loan is no longer upside-down is usually the best choice.
If your vehicle is worth more than the remaining loan amount—as is usually the case—you can then proceed to acquiring the vehicle’s title.
The Important Piece of Paper
Buyers want to be assured their transaction with you is legitimate. The best way to make them feel at ease is to have the title on hand to give to the buyer upon their purchasing of your vehicle.
The way titles are handled varies from state to state, so it’s best to contact your lender or Department of Motor Vehicles (DMV). Usually, you will be required to pay your auto loan off before a lender will issue it to you, though. If this is the case, and if you have an adequate amount of savings, you may want to consider paying your loan off in full to acquire title. Then your savings will be replenished once you sell your vehicle.
If money is tight and you’re unable to acquire title prior to selling the vehicle, you can pay the loan off with the proceeds from selling your vehicle, and then sign the title over to the buyer. But this requires the buyer’s trust as he takes a small risk in handing money over without receiving title immediately in return.
In the event the buyer is wary of purchasing without title, call your lender and schedule an appointment with a loan officer. If the bank is accommodating, you and the buyer can both travel to the bank together and sign title over as the buyer gives you payment in the bank’s office, resulting in security for both you and your buyer.
Selling to a Dealer
If you plan to trade your vehicle in to a dealer, then you usually don’t have to worry about acquiring title to your car. Rather, the dealers are adept at obtaining all necessary documentation, and are usually very accommodating.
The downside to dealer trade-ins is that you’re usually offered a lower price for your car than you could otherwise get from a private transaction. But with the help of online websites that reveal the average value of cars, you can walk into a dealership prepared to bat away any low-ball offers.
What About A Lease?
If you’re leasing a car and not financing it with a traditional auto loan, often times the best way to sell the car before the lease is up is by contacting the dealer and asking for their input, or by using a lease-transferring service.