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How To Sell A Car With A Loan: A Step-By-Step Guide

Miranda Crace5-minute read
UPDATED: November 14, 2023


Selling a vehicle that has an existing auto loan isn’t impossible, but it can make the transaction a little more complicated. Thankfully, though, you can take some steps beforehand to help the process go as smoothly as possible.

Let’s explore the topic of how to sell a car with a loan, and we’ll also uncover answers to some frequently asked questions about this type of sale.

How To Sell A Financed Car Without Paying It Off Beforehand

Once you’ve decided to sell your car, you can use the steps described below to complete the transaction:

1. Gather Information From Your Lender

Your first step will be to contact your lender and let them know you’re interested in selling your car. From there, they can provide you with the information you’ll need to complete the sale, such as:

  • The payoff amount: This is your outstanding loan balance plus any required interest and fees. Some lenders may charge you a prepayment penalty for paying off your auto loan early. You can also ask for a payoff letter that includes a breakdown of the dollar amount.
  • The expiration date: The payoff amount your lender gives you will only be valid for a specified amount of time. After that period expires, you’ll need to request an updated payoff amount from your lender.
  • Acceptable forms of payment: Your lender might require you to follow a specific process to submit the final payoff. For example, you might need to send a check attached to a completed form.

2. Determine The Value Of Your Vehicle

After receiving the above information, you can now figure out how much your car is worth. This is possible in more than one way. For example:

Be sure to consider your car’s mileage, year, make, model and overall condition when determining a fair market value.

3. Calculate Your Equity

Now that you have your payoff amount and an estimate of your car’s value, you can calculate your equity. This is the amount you’ll have left over once you pay off your loan. Depending on your situation, you could have positive equity or negative equity, both of which can affect the transaction.

Your Vehicle’s Value – Your Payoff Amount = Your Equity

Hypothetically speaking, let’s suppose your car is currently worth $5,000 and your payoff amount is $3,750. You could find your equity by subtracting your payoff amount from your car’s market value. In this situation, you’d have $1,250 in positive equity.

On the other hand, if your car was only worth $2,000, you’d have negative equity of $1,750. That means you’d have to pay your lender $1,750 to sell your vehicle. 

We’ll delve deeper into what that means in just a minute, though.

4. Find A Buyer                  

At this point in the process, you can start looking for a buyer. You could list your vehicle for sale online, place an ad in your local newspaper or take the vehicle to a used car dealership.

If you know you want to purchase a new vehicle, you might want to use your soon-to-be-old car as a trade-in. In that case, you can simply research a few dealerships and pick the one you’d like to work with. Then, set up an appointment with a salesperson.

5. Get Your Payment

With a buyer lined up, you can prepare to receive the payment for your vehicle. However, the amount of equity you have will determine if you can make a profit.

Positive Equity

If you’re selling your vehicle and have positive equity, the buyer can choose to give you two checks: one for the payoff amount and one for your equity. The first check will go to your lender while the second check can be deposited into your checking account or invested into another purchase.

Negative Equity

If you have negative equity, you’ll have to pay the difference between your car’s sale price and your payoff amount. You can deposit the buyer’s check and then send your lender the final payoff amount from your own bank account.

If you’re trading in your vehicle for a new one, your dealership can help you pay off your current vehicle, but you’ll need to pay them back or add this balance to your new car loan. Keep in mind: You’ll end up paying more in interest with this option.

6. Transfer The Title

After your lender receives the payoff amount, they’ll release the title, which you’ll need to transfer to the new owner. The buyer can then take the title to their local Department of Motor Vehicles (DMV) office to register the car in their name. 

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FAQs About Selling A Car With A Loan

Learn more about selling a car with a loan by reviewing the answers to these frequently asked questions.

Can I sell a car with a loan?

Yes, you can sell your car even if you’re still paying off the loan. However, if you’re upside down on your loan (your outstanding loan balance is more than the vehicle’s market value), you likely won’t make a profit from the transaction.

How can I sell a financed car?

You can sell a car with an existing loan in few ways, such as:

  • Selling your car to a private party
  • Selling your car to a used car dealership
  • Trading in your car to buy a new one

How long does it take to sell a car with a loan?

The amount of time it takes to sell a car with a loan depends on your personal situation. On average, it takes about 2 1/2 weeks to sell a car, but it could take upward of 4 – 6 weeks to find a private buyer, pay off your loan and complete the sale.

Will paying off my car loan early hurt my credit score?

Paying off a car loan early can temporarily drop your credit score by a few points. That’s because you’re essentially closing a credit account when you pay off your loan, potentially affecting your credit mix and the average age of your accounts.

Should I sell a car with a loan now or pay it off?

While it’s possible to sell a car with an existing loan, some people may opt to pay off the loan before listing the car for sale. Doing this can simplify the process. You can also choose to refinance your auto loan with a personal loan, perhaps making it easier to sell your car without having to wait for the end of your auto loan’s repayment term. 

Final Thoughts

Selling a car with an existing loan can help you pay off your balance and free up more of your budget for another purchase. By carefully evaluating the amount of equity you have and how you want to sell your vehicle, you can streamline the process.

If you think refinancing your current car loan is the right choice for you, apply for a personal loan with Rocket LoansSM.

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Miranda Crace

Miranda Crace is a Senior Section Editor for the Rocket Companies, bringing a wealth of knowledge about mortgages, personal finance, real estate, and personal loans for over 10 years.