Selling Your Car with a Loan? Here's What You Need to Know
Outstandings loan can be a tricky when you want to sell your car. If you find yourself in this position, don't worry - you're not alone. Many people need to sell their vehicle before the loan is fully paid off. Whether you're upgrading to a newer model or simply need to cash in on your current ride, there are a few important factors to consider.
In this blog post, we'll walk you through the process of selling a car with a loan. We'll cover the steps you need to take, the potential pitfalls to watch out for, and the best strategies to ensure a smooth transaction. From understanding your payoff amount to negotiating with potential buyers, we've got you covered.
By the end of this article, you'll have a clear roadmap for selling your car and paying off the remaining balance on your loan. We'll provide practical tips and advice to help you navigate this process with confidence. So, if you're ready to sell your car but still owe money on it, keep reading. We're here to guide you through every step of the way.
Paying Off the Loan
The first thing to understand is that whoever buys your car will not be responsible for the loan. You are still on the hook for making the monthly payments until the loan is paid off. So before you can finalize the sale, you need to pay off what's left on the loan. There are a few different ways to do this:
Pay it off with cash from the sale. If you sell the car for close to what you still owe or more, you can use that money to pay off the loan balance right away. Be sure to get the loan payoff amount from your lender before the sale.
Refinance the loan. If the sale amount is not quite enough to pay off the loan, you may be able to refinance what's left into a new personal loan. This keeps the monthly payments the same but stretches the term out longer so it's easier to pay down over time.
Use the difference as a down payment. In some cases, the sale price will cover most but not all of the loan. You can use the money from the sale as a sizable down payment on a new car loan for your next vehicle. This lowers your monthly payments on the new loan.
Pay it off gradually. As a last resort if funds are tight, you can continue making monthly payments on the original loan even after selling the car. Just be sure the new owner understands they are not responsible for those payments.
No matter which option you choose, clear the loan balance before you sell your car. Always get the exact payoff amount in writing from your lender first.
Get the Title Prepared
After paying off the loan, you'll need to get the title from the loan company or your state's DMV. Bring them the loan payoff letter to prove it's been paid in full. They will release the title to you but it will still list the loan company as a lienholder since it was paid recently.
At this point, the title isn't quite ready to transfer ownership to a buyer yet. You need to get the lien released by having the loan company or DMV sign off on a lien release form. This confirms the loan is fully satisfied and removes them as a lienholder on the title. Only then can you legally sell used cars and transfer clear ownership through the title.
Prepare the Car for Sale
Once the title is fully cleared, it's time to get the car in top selling condition. Go through the following checklist:
Detail the interior and exterior thoroughly to make it look its best. Clean carpets, shampoo seats, wash, wax and detail engine bay.
Check for and fix any minor dents, scratches or rust issues that could turn buyers off.
Service all fluids, filters, tires, batteries etc. to ensure everything is in good working order.
Remove any personal belongings, trash or items that could make a buyer uneasy.
Take professional photos inside and out in natural lighting to showcase condition.
Obtain a vehicle history report to verify no accidents or other issues reported.
Consider a mechanic inspection and fix any problems before listing to maximize price.
Making the car shine both inside and under the hood demonstrates to buyers it's been well cared for and will likely need fewer repairs going forward after purchase. This helps justify your asking price.
Advice for Pricing it Right
When coming up with your asking price, do your research before you sell used cars. Check values on similar makes/models in your area on websites like Kelley Blue Book or Edmunds. Consider factors like mileage, condition, options/packages and local market trends. Price it competitively but not too low - you still want to turn a profit after paying off the loan.
You can also compare to similar vehicles currently for sale locally. Price just below the competition if yours is in better shape. Sell car online on classified sites like Craigslist or Facebook Marketplace and car trading/dealer sites if possible for better visibility.
Be prepared to negotiate some, but don't budge too much at first. It's ok to consider reasonable offers that aren't your asking price as long as you still make a reasonable profit after paying off the loan and taxes/fees. The goal is a quick sale, not the highest possible dollar amount.
Finding a Serious Buyer
Take high quality photos for your ad to really showcase the vehicle and condition. Write an appealing description highlighting features and recent services. Be upfront about any issues, even minor ones, to avoid surprises later.
Screen buyers carefully to find someone who seems genuinely interested, able to pay, and willing to see/test drive right away if local. Red flags are vague questions, scheduling issues, or lowball offers without inspecting. Trust your instincts.
Consider conducting a test drive together, then showing service records, a clean Carfax or history report, and explaining the clear title process. This reassures buyers of the value and condition. A pre-purchase inspection can also give buyers peace of mind, so offer this option if possible.
Always meet in a public, well-lit space when exchanging money and paperwork in the process to sell your used car. Have the buyer do a final walk around and test drive to check everything performs as promised before finalizing the deal. Stay safe but try to make things low pressure so both parties feel good about the transaction.
Handling Taxes and Fees
In most states, you are required to submit forms reporting the sale and pay sales/use tax based on the sale price. Inform the buyer upfront you must report this to comply with regulations. As the previous owner, you are responsible for paying any taxes due on the sale.
Remember the DMV also charges a title transfer fee, usually around $50-100 depending on your state when you sell your car. Factor this into your minimum sale price needed to profit and pay off the loan after taxes. Provide the new buyer signed paperwork and the clear title docs as soon as the deal is finished.
Paperwork They'll Need
Collect all the proper forms and legal documents needed to complete a legitimate vehicle sale:
Signed and notarized title or MSO with your info as seller releasing ownership.
Bill of sale listing sale date, names/addresses of seller and buyer, vehicle details, warranty info and sale price.
Power of attorney form giving permission for the new buyer to handle registration if needed.
Release of liability form to confirm buyer assumes all ownership responsibility going forward.
Any mechanical receipts or service records to validate the vehicle's condition.
Valid license, registration and insurance info for test drive.
Having everything filled out and notarized cleans the transaction to be legal and verifiable if issues ever arise post-sale. It streamlines registration for the new owner.
Conclusion
Well, there you have it - the key steps to successfully selling your car with an outstanding loan. It may seem like a daunting process, but with the right preparation and information, you can navigate it with ease.
Remember, the most important thing is to stay organized, communicate openly with your lender, and be upfront with potential buyers. If you follow the advice we've outlined, you'll be well on your way to a stress-free transaction.
Of course, if you're still feeling unsure or need a little extra help, consider using a platform like Carz2deal. As a leading marketplace for buying and selling used cars, Carz2deal takes the hassle out of the entire process. Their knowledgeable team can guide you through every step, from determining your car's value to handling the paperwork.
With Carz2deal, you can rest assured that you're getting the best possible price for your vehicle, even with an outstanding loan. Plus, their extensive network of buyers means you'll have no trouble finding the right person to take your car off your hands.