First, ask your lender what they suggest. You don’t have to reinvent the wheel or figure things out with general articles that may or may not apply to you. Call your lender and just ask what it takes to sell a car with a loan. They’ve certainly heard the question before, and they can lay out a process that borrowers should follow. If you can’t follow that process, read on.
You’ll need to know how much you still owe your lender -- right down to the penny. Technically, you probably won’t sell your car with the loan outstanding. Instead, the best approach is to unwind the loan while (or ideally before) you sell the car. Ask your lender for a ‘payoff amount,’ which will tell you exactly how much they need and when they need it to close out your loan.
You may not know exactly when you’ll pay your lender, because you may not know when the car will sell. In that case, the payoff amount changes over time as interest and payments affect your loan balance. If you’re going to sell your car with the loan still in place, ask your lender how the loan amount changes with each day that passes (the process is similar to using a mortgage payoff letter).
You’ll also need the title when you sell your car. While you may be able to sell without possession of the title, it’s a lot easier if you have the title handy. Titles are handled differently depending on your state of residence -- one more reason to call your lender, and you may need to call your local DMV. Find out what it takes to get the title (or a lien release), how long it will take to get it in your hands, and so on; set your buyer’s expectations so the deal goes smoothly -- and so it gets completed.
Don’t Sell the Car with a Loan
If possible, the best thing to do is to pay your loan off long before selling the car. Get a clear title that you can simply sign over. This is most attractive to buyers, so you’ll have an easier time getting the price you want. Selling your car with a loan attached may spook some buyers away.
Remember that you’ll get cash after you sell the car, so you may be able to replace whatever funds you use to pay off the loan. If you’re upside-down on your auto loan, it’s not so simple. Consider all the options and pick one you can live with, including:
If You Trade With a Dealer
Trading in your car is easier than selling it to an individual. Dealers commonly handle transactions like this, and they’ll handle all the paperwork behind the scenes. After paying off your loan ahead of time, it’s the second best option.
However, the ease trading in a car with a loan does not come for free; you may not get the best price for your car. In addition, you may end up transferring debt from one automobile to another, which can eventually snowball out of control. If you’re upside-down on your trade in, it’s risky to finance another car.
Private Buyers Who Trust You
You’ll get the best price for your car if you sell to a private buyer. If the buyer trusts you, it may be as simple as selling the car with your loan untouched, paying off the loan with sale proceeds, and signing the title over after you get a clear title from your lender (which may take several weeks). You can ask your buyer to pay the lender directly if that makes things more comfortable, but this still requires substantial trust.
If you’re upside-down on your loan, you’ll have to supplement the buyer’s payment with funds of your own.
A Trip to the Bank
If your buyer is more skeptical, but still accommodating, you can go to the bank together -- assuming your lender has branches in your area. Your buyer’s payment can immediately be applied to your loan, and you can sign the car over in the branch. Call your lender ahead of time to make sure this is possible, and to be sure your title (or other necessary documents) will be ready and waiting for you at the branch.