Selling a car still on finance can be hugely challenging. It’s way harder than selling a car that’s been fully paid for. However, these challenges should not intimidate you. You can still sell a car that’s on finance. In this article, I will explain just how.
Calculate Your Payoff
The first thing you need to do is to speak to your lender so they can help you figure out how much you still have to pay. You should get the payoff figure in writing. Your lender should be able to write a payoff letter that officially declares the payoff amount remaining, the date at which that payoff amount is valid, the details of the repayment agreement, and to whom the payments must be made. These details will help your prospective buyer understand the finances of the car. If it takes longer than the validity of the payoff letter to sell the car, then you will have to return to your lender and get a new one.
The payoff amount reflects not just the principle left to pay, but the remaining interest payments and any other unpaid fees. So, it may be different to your current balance, which just shows how much you owe for the car.
Sometimes, your lender will have ideas on how to sell a car still on finance, so you should make sure to ask them. Your lender may even have an office where you and your prospective buyer can meet, to verify the details of your loan agreement and help the buyer understand the loan agreement.
You should also ask your lender about potential prepayment penalties and what they estimate the processing time will be for receiving the title once the lien on the car has been issued. These details will depend on what state you are in.
Typically, you will not be able to sell the car while the loan remains outstanding. What will happen is that you will be able to use the funds from the sale of the loan of the car to close off the loan, after which, your lender will release the car’s lien and title can be transferred to the buyer.
Pay Off the Loan
If you can, your best course of action is to pay off the loan before you sell the car. This will make it easier to sell the car, because it will be off financing. This is the preferred status of most buyers. Buyers understand that buying a car on financing can be complicated, so they are hesitant about buying a car on finance.
As we said in the first part of our recommendations, you should check with your lender to see what prepayment penalties there are. As part of your process to figure out if you should pay off the loan, you should:
- Determine your car’s value. The National Automobile Dealers Association (NADA) has a guidebook that is useful in this regard. You should also consult the Kelley Blue Book for an estimate of your car’s value.
- If you have negative equity, which is to say, you own more than what the car is worth, postpole selling the car, or pay down the debt. So there’s no way you will find a buyer for the car. You have to postpone selling the car, while you come up with the difference, and get to a positive equity position.
The chief obstacle to selling a car on finance is the presence of the lienholder’s name on the title. To get their name off of the title, you could consider getting a low-interest loan to pay off the car loan, and then using the proceeds from the sale of the car to pay off the loan. So your loan has to be short-term so that you don’t have any penalties for quickly repaying the loan. You might even be able to pawn your car title to raise cash once the lienholder’s name is off the title.