How To Sell a Car That Is Not Paid Off

Jack R. Nerad | Oct 23, 2020

You've decided to say goodbye to your car. Maybe you have an eye on another newer, shinier model, or you feel that you need to downsize your car and your payments, or you've decided you don't need a vehicle anymore at all. Whatever the reason, you want to sell your car. The only problem is you still owe money on the car loan. 

how to sell a car that is not paid off

So, are you stuck with the car — and the string of car payments — that you currently have? Or is it possible to sell a car when you still owe money on it?

The simple answer to that last question is yes. But owing payments on a loan will affect the amount of money you get for your car and the amount of work you'll have to do to collect that money. Frankly, the difference in time and effort can be vast. The process can take less than an hour, or it can take days or even weeks filled with delays, hassles, and paperwork.

What follows is a step-by-step guide explaining how to sell a car that is not paid off. 

Find Your Car's Value

The first step in the process is finding your car's current value. Choose a source of used vehicle values, which typically include "Trade-in," "Private Party," and "Retail." As a private owner selling to either a dealership or another private owner, ignore the retail price. Trade-in will be your guide if selling to a dealership. Private Party values will be your guide if selling to another individual.

Be honest with yourself about the condition of your vehicle. The cleaner and better maintained it is, the more you'll get for the car. Also, conduct a used car classified ad search for vehicles just like yours on sale in your region. You need to know what other people expect to get for the same kind of car because they are your competition for the sale.

Find How Much You Owe on Your Loan

The next thing to do is find out how much you owe on your car loan. The information you want is the "payoff balance," which might be slightly different from the balance listed on your most recent statement. Typically, it is easy to get the payoff balance amount online or with a phone call to your lender. 

Subtracting the payoff balance from your car's value determines the amount of money you can expect to receive by selling your vehicle. However, keep in mind that the number you get from performing that simple equation might be negative. That means what you sell the car for won't pay off the car loan balance.

Let's say, for example, your payoff balance is $10,000, and your car is only worth $9,000. This $1,000 of "negative equity" — also known as being "upside-down" or "underwater" on the loan — means that simply to sell your car to someone else, you have to come up with an extra $1,000 to pay off the car loan. 

Being upside down doesn't make it impossible for you to sell your car, but it is another pothole on what can be a complicated road to success. 

Consider Your Alternatives

Once you've established the probable value of your car, the loan payoff amount, and your equity or lack thereof, you are at a crossroads. There are several pathways you could take: 

  • You can keep the car and continue making the payments you have contracted to make 
  • You can sell the car to a dealer or a national chain like CarMax 
  • You can sell your car through the J.D. Power Instant Offer process 
  • You can sell your car to a private party

Of these alternatives, using the J.D. Power Instant Offer process is the simplest and most straightforward. It enables you to get a cash offer for your car from a nearby dealer. The dealer handles the paperwork and can easily help you through a situation where you are upside down on the vehicle you are selling. The process gives a dealer the opportunity to sell you a car even as they are buying yours, so they are motivated to help.

Selling to an Individual

Compared to the simple and straightforward process of selling your car to a dealer, selling your vehicle to an individual is more complicated and time-consuming. A key stumbling block is that you, as a borrower, do not hold your vehicle's title; the lending institution does. Since selling a car involves the transfer of title, that is a fairly big complication, but, on the other hand, people deal with it every day. 

It is wise to advise prospective buyers of your car that you owe money on it, and the title transfer will involve more steps than simply handing over a wad of cash or a Cashier's Check from a nearby bank. This situation could turn some buyers off, and you don't want a buyer to bail out of the deal once you are deep in the process.

It is also wise to work with your car loan company to facilitate the private-party sale because they hold the title, and they should have procedures that can make it all easier. If your loan is with a local credit union, local bank, or a large bank with a branch near you, you can often do the deal in that place of business, collect the funds from the buyer, pay off the lender, and transfer title to the new owner all in the space of an hour or less. 

Suppose your lender is not local and does not have a facility you can use to make the sale. In that case, you may need to get a temporary operating permit from the Department of Motor Vehicles or Secretary of State, use an escrow service (brick-and-mortar or online), or come up with another arrangement that is acceptable to the prospective buyer. Most buyers will be reluctant to hand over a large amount of cash or a negotiable Cashier's Check without getting a vehicle title in return. Many won't take possession of the car under those circumstances either, all of which is understandable. 

The Bottom Line

An Instant Offer-facilitated sale of your car to a local dealer is convenient, safe, and hassle-free, especially if you owe money on your car loan. Selling your car to a local dealer or large used-car dealer chain like CarMax is another safe, convenient alternative in that situation.

Contrasting with that, those willing to wade through the paperwork and find a buyer who is willing to do the same might realize more money from the sale of a car by working their way through the process. Owing money on the vehicle is a complicating factor when selling it to a private owner. Still, you can complete the process without tearing too many strands of your hair out. 

Only you can determine how much you value speed and convenience versus a potential hassle that nets you more cash in the end. 

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