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How to sell a financed car
Compare 6 ways to sell a car with a lien on it.
It’s not impossible to sell a car that still has a loan on it, but there are few things you need to keep in mind. Generally, you have to pay off the loan before you transfer ownership to someone else. But there are a few ways to speed up that process.
Can you sell a financed car?
Yes, you can sell a car with a loan on it. But as long as the loan exists, the lender has a lien on the car, meaning the lender has first rights to the car until you fully pay off the loan. If you default on your loan after selling the car, the car could get repossessed from the person you sold it to. Because of that, most people are wary about buying a car with money owed on it, so it can be hard to find a buyer. That’s why it’s best to pay off your car loan before selling.
How to sell a car with a loan on it
You have 2 main options if you want to sell a financed car. With both options, you’re still responsible for paying off the loan.
- Sell it to a private individual. You can either pay off the car loan first or use the profits to pay off your lender.
- Trade it in at a dealership. You can trade in your car for a vehicle of similar value and roll your old loan into a new deal.
3 ways to pay off a financed car in a private sale
Thinking of selling your financed car privately? Here are 3 options for paying off your current loan:
- Sell your car and use the money to pay off the loan
- Refinance your car loan before selling
- Use savings, another loan or a credit card
1. Sell your car and use the money to pay off the loan
This is the easiest option for selling a financed car when money’s tight, but you need to earn the trust of your buyer for them to give you their money so that you can pay off the loan.
- Be direct and honest. Let the buyer know you owe money on the car and that you’ll pay off the loan in full immediately after the transaction. For peace of mind, offer to bring the buyer to the bank or lender and clear the debt in front of them. Get a copy of the vehicle’s history report from a company like CARFAX and show the buyer that there is no outstanding lien on the car. If you’re selling a car in Ontario, the Provincial Government actually sells used vehicle information reports (UVIPs) for a nominal fee of about $20.
- Profit or loss? Look at how much you can sell the car for and how much it’ll cost to repay the loan fully — including any early repayment fees and other costs. This will give you an idea if you’re going to gain or lose money from the sale.
How much should I sell my car for?
You can figure out how much your car is worth by getting it appraised by a mechanic. You can also get a ballpark idea from websites like Canadian Black Book, Auto Trader Canada, and Kijiji Autos. Also consider making repairs or having your car detailed so you can up the price — or at the very least give it a good wash. The more you’re able to sell it for, the more you’ll save.
2. Refinance your car loan before selling
Refinancing your car loan involves trading in your loan for another, ideally with more favorable rates and terms. You could potentially save some money by switching to a lender with more competitive rates and paying off your original car loan before you sell it. If your new car loan has better terms, you may be able to profit from the sale.
- Can you find better loan terms? Calculate the difference between the fees and interest rates of your current loan with the fees and interest rates of any new loans you’re considering. Also remember to take into account any additional fees you’ll be charged from closing your old loan.
- Will you actually save money? After the above terms have been determined, find out exactly how much you’ll save by refinancing your car loan. After all is said and done, will you actually save money?
Need extra cash? Refinance instead of selling.
If you’re selling your financed car simply to free up some cash in the monthly budget, consider refinancing your car loan instead. That way you can keep your car and still save money. By locking in a lower interest rate and more favourable terms, it’s possible to save anywhere from $5 to over $20 every month, which could add up to more than $1,000 saved over the course of the loan.
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3. Use savings, another loan or a credit card
Pay off your financed car before selling it with your own savings to eliminate debt altogether. Finding a low interest credit card, a small loan or debt consolidation can be a good option too if the rates are lower and you know you can keep up with payments.
- Savings. If you can afford it, paying off the loan before selling your financed car with your own savings eliminates debt altogether.
- Low-interest credit card. Good planning can help you keep costs down if you choose a credit card with a low- to no-interest promotional period. However, if you can’t meet the minimum repayments, it could end up costing you more.
- Small loan. If you plan on selling the car as soon as it’s no longer being financed or you only have a small amount left to pay off, then a small personal loan might be more suitable than a refinancing loan.
- Debt consolidation loan. If you have multiple high-interest loans and credit cards on top of your auto loan, you can consolidate all of your debt to get rid of your car loan before selling the car.
3 ways to sell a financed car to a dealership
Prefer to work with a dealership instead of selling your car privately? Many are happy to work with buyers who still have a lien on their car — and you may even get more reasonable rates than if you try to sell your financed car privately.
1. Upgrade to a new car
If you want to upgrade your car, many dealerships will incorporate the terms of your loan into a trade-in deal — especially if it’s the same dealership you used for your first car. Remember, though, that this doesn’t make your car loan disappear, it merely rolls it into your next car loan (although the dealer might give you a discount for giving them your business). You still have to pay off the loan.
2. Trade in your car for cash
If your car is less than five years old and in good condition, you could get a reasonable trade-in offer at a dealership. You can use that cash to pay off your existing car loan, then buy a new car elsewhere or spend any reaming cash as you like.
3. Downgrade to a cheaper car
You can also downgrade your car if you’re looking for something more cost-effective and want more money in your pocket after the trade. This might be a better option if you owe more than your car is worth.
Not sure what to do? Ask your lender
Your lender will likely have an idea of what you need to do to pay off and sell your financed car if you’re not sure which option is best for you. Most lenders have worked with borrowers in this situation before and have an idea of what your best options are. You may even be able to renegotiate the terms of the loan in order to make it more affordable to keep your car.
What information do I need to sell a car with a loan on it?
If you’re thinking about selling a financed car, first gather together the following information to help the process go smoothly.
- Payoff amount. This is the amount you need to pay to completely pay off your loan. Besides the outstanding loan amount, you may also have to pay your lender early repayment fees and any administration fees. You can request that your lender send you a document with a full breakdown of the what you have to pay back, including any fees. Keep in mind that some lenders don’t allow early repayments depending on the type of loan, like when your car is being used as collateral in a secured loan. So check with your lender before you consider selling your financed car.
- The title transfer process for your lender. Each lender might have a different process for transferring the title to the new buyer if you sell your car privately. You might need to coordinate with the new buyer’s lender to hand off the loan.
- Your car’s current value. Get an estimate of your car’s current value by using tools on sites like Canadian Black Book, Auto Trader Canada, and Kijiji Autos to prepare for negotiations with your dealership or private buyer. Or, have it evaluated by an expert.
- Your car’s equity. You can calculate this by subtracting the payoff amount from the car’s current value. If your car is worth less than the payoff amount, you have negative equity, which can make it difficult to sell with a loan.
Take these steps before selling a financed car
Follow these steps before selling a car with a lien:
- Weigh your selling options. Decide whether you want to sell to a dealership or a private party.
- Decide how you’re going to repay the loan. Will you use the money from the car sale, or do you have money to pay it off before the sale? You’ll also have to account for any early repayment fees or other costs associated with your lender.
- Earn your private buyer’s trust. Some people may be hesitant to purchase a car that’s not fully paid off. Make it clear you intend to pay off the car once you make the sale. For peace of mind, offer to bring the buyer to the bank or lender and clear the debt in front of them.
Consider these factors before you decide to sell a financed car
Here are three factors to think about before selling a car that has a lien on it:
- Depreciation. The value of your car can drop considerably in a few short years, so consider depreciation and how much money you can reasonably expect to get from selling your financed car.
- Trust. Most people are wary about buying a car with money owed on it.
- Risk of going underwater. If you’re working with a dealership and want a car worth more than the value of your current vehicle, you might roll your old balance into a new loan – making it easy for your car loan to become upside down.
Selling a car with positive vs. negative equity
Selling a car that’s worth more than the remaining amount of your loan balance, also called positive equity, is generally easier than selling a car valued at less than your balance, otherwise known as negative equity. Even when you have a negative equity car loan, you’ll still be responsible for covering the difference between your loan balance and the car’s value whether you sell it to a private party or dealership.
Let’s say for example that after 5 years of paying down on your car loan, you still have a balance of $13,000 left to pay. But during those 5 years your car’s value has depreciated, so now it’s actually only worth $11,000. If you were to sell your car for what it’s worth, you would still owe car loan lender $2,000, which you would have to pay out of your own pocket.
Buying another car? Compare car loan options
Make sure you lock in a great rate on your next car loan with the providers below. Check out details like loan terms, rates and credit score requirements. You can compare two or more providers side-by-side by clicking the compare box beneath each provider you’re interest in.
Representative example: Kelly sells her car
Kelly recently got a job very close to where she lives. Currently, she pays $125/month for her car, but she decides to sell the vehicle and pay off the rest of her car loan ($4,500.00), because she can now easily walk to work. This will allow her to pay down her debts more aggressively. Kelly connects with a buyer who offers her $7,200.00 cash for her car, which she accepts. However, the buyer won’t own the car until Kelly pays off her loan and her bank (the lender) no longer has a lien on the vehicle.
To assure the buyer that he has full ownership of the car, Kelly and he go to Kelly’s bank where she uses his payment to pay off her loan and then deposits the excess amount into her account. Because Kelly is closing out the loan earlier than the bank anticipated, she is charged an early repayment fee to make up for the interest fees the bank won’t get after she stops making payments.
|Amount owing on the car loan||$4,500.00|
|Loan type||Auto loan (term loan)|
|Early repayment fee||$500.00|
|Total amount owing||$5,000.00|
|Amount deposited from the sale of the car||$7,200.00|
|Total leftover after the car loan is fully paid||$2,200.00|
Though Kelly had to pay a fee for discharging her loan early, she can now put an extra $125/month towards debt along with the money she was previously paying on gas and auto insurance. Plus, she has an additional $2,200.00 to use as she sees fit. In this case, it was a good idea for Kelly to sell her car even though she still owed money on it.
*The information in this example, including rates, fees and terms, is provided as a representative transaction. The actual cost of the product may vary depending on the retailer, the product specs and other factors.
Having a financed car doesn’t have to stop you from selling your car either in a private sale or to a dealership, you just have to be careful to pay off the loan before or during the sale. You can learn all about how car financing works by reading our guide to auto loans.
Frequently asked questions about selling a financed car
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