4 Things to Know When Selling Your Car Under Finance

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Selling a car is challenging enough—it is a lot of paperwork and can often be an even more complicated process if you sell to a buyer abroad. However, that stress can increase triple-fold if you still owe money on your car. Selling a car under finance, as it is called, can be complicated, but it is prevalent for people selling their vehicles.

When you are still paying the loan on your car, you don’t technically own the title. Your car’s title is owned by the loan lender, which means you don’t necessarily “own” your vehicle. When selling your car, you can either sell your car to a dealer and trade it in for a new car, or you can sell it to a third-party buyer. Here are five things to remember when selling your car without paying off the loan!

How Much Do You Owe On Your Loan?

If you bought a car within the past five years, chances are you know how much money is left on a loan. You need to determine this first before you begin the selling process—you should contact your lender personally to speak with them directly about their selling policy. Each lender is different, but you will want their approval of the transaction so the loan can be transferred to the buyer or paid off in most circumstances.

Equity: Positive or Negative.

When trading in your car to a dealership, whether your equity is positive or negative directly impacts the transaction. If your 2015 Honda Civic is worth $8,000 as a trade-in, but you owe $7,000 left on your car—this is positive equity. The difference– $1,000—can be applied directly to your next purchase.

Often, this can be put toward the down payment of your new vehicle!

On the opposite side, you might owe $15,000 on your 2015 Honda Civic, but the trade-in value is $10,000. Instead, you will owe the dealer the difference– $5,000—because the trade-in value will cover most of the loan.

Reach Out to Your Bank.

Having negative equity often means you are “upside-down” or “underwater” on your loan. If this is the case when you are trying to trade in or sell, you’ll want to pay off that difference yourself once the car is sold. If you sell your car for more than it’s worth, that solves some of your problems!

However, your bank might reach out to you to have that loan paid off before the transaction. There are several ways you can do this: refinancing the car, using your savings, getting a personal loan, and many other things. Either way, it is best to stay in regular contact with your bank during this process.

Contact Your Local DMV.

There’s a lot of paperwork involved with selling your car.

You will want to reach out to your local Department of Motor Vehicles (DMV) to obtain the correct paperwork necessary to sell your vehicle legally, generally including:

  • A bill of sale
  • A release of liability
  • Ownership papers
  • The title of your vehicle

This paperwork, and the process of vehicle purchase and selling, varies depending on where you are located. You also need to find out if the buyer must be present to sign any of this paperwork physically.

Alicia Baker
Alicia is a Canadian writer whose enthusiasm for cultural and automotive are combined in her writing. Her background includes links to insurance, finance, and automotive safety.