How to sell a financed car

It’s possible to sell a car that still has a loan on it, but there are few things 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 car with a loan on it?

Yes, you can sell a financed car. But as long as the loan exists, the lender has a lien on the car. This means if you default on your payments or fail to pay off your loan, the lender can repossess the car, even if you sold it to someone else. This can make it much more difficult to find a buyer since most people won’t want a car that could be repossessed. Buyers will check first whether a used car has a loan on it before buying. 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 three main options if you want to know how to sell a financed car without paying it off in Canada. With all three options, you eventually must pay off your loan, but how you do so will be different.

1. Sell it to an online dealer or bidding site. Online dealers and bidding sites have sprung up in Canada in recent years to make selling a car as easy as possible, even if there’s a loan on it. Learn more below.
2. Sell it to a private individual. You can either pay off the car loan first before selling it to a private buyer, or sell it first and use the profit to pay off your lender. Learn more below.
3. Sell it to an in-person dealership. If your car has a loan on it, local dealerships near you will still be open to buying it. Learn more below.

Who is most likely to be researching how to sell a financed car?

Finder data suggests that men aged 25-34 are most likely to be researching this topic.

Option 1: Sell your financed car online

Selling your financed car online is the most hassle-free method out of all three options because it’s quick and you won’t have to leave your home. Online dealers (also known as “online car retailers”) and bidding sites are the two ways to sell a financed car online.

1. Online car retailers/dealers

Online dealers allow you to sell a financed car completely online. To start, go to the online dealer’s site to see your offer within minutes by providing the year, make and model of your car. A representative will go to your home to appraise your car and take it off your hands if you want to proceed with the sale. You will have to provide government-issued ID and the vehicle registration.

Any leftover balance in your car loan will be deducted from your offer, and the online dealer will take care of the payout.

Get an offer for your financed car from an online car retailer

2. Online bidding site

Similar to online dealers, an online bidding site allows you to get a quick offer online for your financed car and have it appraised and picked up from your home. The big difference is that an online bidding site is a platform that lets multiple dealers bid for your car. Once you accept an offer, the bidding site will take care of the payout of your car loan. Examples of bidding sites in Canada include MintList and Autozen.

Option 2: Sell a car with a loan on it to a private individual

To sell a financed car to a private individual, you can sell the car and use the profit to pay off your loan, or you can use your savings or other credit options to pay off the outstanding balance first.

1. Sell your car and use the money to pay off the loan

This is one way to sell a financed car when money’s tight, but you’ll need to earn the buyer’s trust 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 or get a CARFAX report to show the buyer that there is no longer an outstanding lien on the car.
• Decide if it’s worth it. 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 of whether 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. Use savings, another loan or a credit card to pay off the balance first

Pay off your financed car with your own savings before selling it to eliminate debt altogether. Alternatively, if you can get lower rates than what your car loan has, you can use a low-interest credit card, personal loan or debt consolidation loan to pay off your remaining balance.

• Savings. Pay off your financed car with your own savings if you can afford it.
• Low-interest credit card. Choose a credit card with a low- to no-interest promotional period but make sure you can meet minimum repayment requirements.
• Low-interest personal loan. Use a low-interest personal loan to pay off your existing car loan if you can get a rate that’s lower.
• Debt consolidation loan. If you have high-interest debts that include your car loan and your finances have improved since accumulating these debts, you can get a debt consolidation loan with a lower rate to pay off what’s left of your car loan.

Option 3: How to sell a car to a dealership when it is still being financed

Similar to online dealers and bidding sites, an in-person dealership can buy your car that is still being financed and take care of the payout. However, getting an offer may take longer, and you’ll need to drive to its location so your car can get appraised.

Below are three options you can consider at the dealership if you’re looking to sell your financed car.

1. 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 the remaining cash as you like.

2. 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).

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 (also known as having negative equity).

Refinancing your car loan

If your primary reason for selling your financed car is affordability, you may wish to consider refinancing first. Refinancing your car loan involves trading in your loan for another one that has better rates and/or terms. You could save money by switching to a different lender with lower rates or longer terms to reduce your monthly payments.

• 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 take into account any additional fees you’ll be charged to close your old loan.
• Will you actually save money? Do the math to figure out if you’ll actually save money before you refinance with a new loan or lender.

Compare car loans for refinancing

What information do I need to sell a financed car with a lien on it?

If you want to sell 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. You may also have to pay administration fees and early repayment fees (if your lender allows early repayment at all). You can ask your lender for a full breakdown of fees and for information about whether you can repay your loan early.
• 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 CARFAX Canada’s Value Range estimator, Canadian Black Book, AutoTrader 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.

Selling a car with positive vs. negative equity

Learn more about the difference between positive and negative equity below:

• Positive equity. Selling a car with positive equity means that your car is worth more than what you owe on it. For example, if you owe $10,000 but your car is worth $15,000, then you have a positive equity of $5,000. This means you can pay your loan off and have $5,000 left over. Having positive equity makes it easier to sell a financed car.

• Negative equity. Selling a car with negative equity means you owe more than your car is worth. For example, if you owe $15,000 on your car but the sale price has depreciated to $13,000, then you have a negative equity of $2,000. This means you’ll still owe $2,000 to your lender after you sell your car and use the money to pay off your loan. Having negative equity makes it harder to sell a financed car.

Take these steps before selling a car with a loan on it

Follow these steps before selling a car with a lien:

1. Weigh your selling options. Decide whether you want to sell to an online car retailer, bidding site, dealership or a private party.
2. 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.
3. 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 and 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 upside down. 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.

Does selling a financed car hurt your credit?

It depends on your exact financial situation, but in general, selling a financed car will likely hurt your credit a little. The reason why your credit score could go down when you sell a car is because when you pay off your car loan, the loan account closes. Credit history on the whole contributes to 15% of your credit score. Your credit score may also go down a little if you then apply for a loan to buy a new car, since the finance company will have to do a hard credit check.

Where can you sell a car with a loan on it online?

There are several websites in Canada where you can take charge of your own private sale and post adds to sell your vehicle even if it has a loan on it. Check out our full guide to the best sites to sell a used car online here. Here is a quick look at the top sites:

• Clutch
• Canada Drives
• Craigslist
• Facebook Marketplace
• AutoTrader
• Kijiji Autos
• Autozen

Buying another car? Compare car loan options

Representative example: Kelly, an Ontario resident, sells her financed car

Kelly, a resident of Ontario, has $4,500 left owing on her loan when she decides to sell her car. She connects with a buyer who offers her $7,200 cash as long as she removes the lien on her car. Kelly invites the buyer to come with her to the bank so that she can pay off the car loan in front of him (which will remove the lien). She has to pay an early repayment fee on top of her loan amount and deposits the rest of the cash ($2,200) into her bank account.

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

*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.

Bottom line

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 need 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

• Is it illegal to sell a car with a loan on it in Canada?

  It's not illegal to sell a financed car in Canada, but you must be sure to provide correct information about your car so you don't find yourself in legal trouble. Remember to inform your buyer that there's a lien on the car and contact your lender to let them know you intend to sell a financed car. They can let you know how much is left owing and inform you of the steps you need to take to remove the lien.

• I owe money on my car. Is it better to sell it privately or to a dealership?

  It depends. You may be able to get a better price selling your car privately, but the outstanding loan on it may make selling the car a real headache and turn private buyers away. To avoid this hassle, you may just want to sell your financed car to an in-person or online dealership.

• Help! No one wants to buy my car because of the loan on it.

  When placing an ad, if you aren’t upfront about the car having debt on it, then it might look shady when you disclose that information later. You should make it clear to potential buyers that you are committed to repaying the loan. Have a plan ready for how you intend to remove the lien before or during the sale and communicate this well in advance.

• How can I show my buyer that I have paid off the lien on my car?

  You can go to the bank with your buyer to show them that you have paid off the loan and your lender has removed the lien on your car. You can also show buyers a used vehicle history report showing that the vehicle is free of any debts or liens. Some lenders will also provide a certified letter to show that you've paid off your outstanding debt.

• Can buyers tell if a car has any outstanding debt on it?

  Yes. Many buyers will require you to show them the title of the car before they buy it, and they'll likely conduct a history check on the car themselves. All they need is the vehicle identification number (VIN), which they can obtain through a simple visual inspection. Your best bet is to be honest during the sale and pay off your lien to avoid legal trouble.

• Can you transfer a car loan to another person?

  Yes, many lenders in Canada allow you to transfer a car loan to another person. Keep in mind that the person you want to transfer the car loan to will have to meet any eligibility requirements and be approved by the lender. You can learn more about your options for transferring a car loan in our full guide here.