Looking to sell a car but still have a loan? Here’s what you need to know.
Can I sell a car that’s under finance?
Yes, you can sell a car that still has a loan. However, there are two big problems to get around:
- Most people are wary about buying a car with money owed on it.
- You must pay off the loan in full before you’re allowed to sell the car.
As you can see, solving the second problem also solves the first, so try to pay off your loan before selling.
Ask these 4 questions first
If you want to sell a car that still has a loan, these question should help you understand your options:
- How much do you still owe on the car? Call the bank or lender to determine how much you need to pay to close out the loan.
- How will you pay back the lender? 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.
- Can you convince the buyer to trust you? 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.
- Is the car collateral? If the car is being used as collateral in a secured loan, then you can’t sell it until the loan is completely paid off.
How to sell a car with a loan
When you’re ready to sell your car, but still owe money on the loan, you have options.
Sell your car and use the money to pay off the loan
This is the easiest option when money’s tight, but you need to earn the trust of your buyer.
- 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.
- Profit or loss? Look at how much you can sell the car for and how much it’ll cost to repay the loan in full — including any early repayment fees and other costs. This’ll give you an idea if you’ll make or lose money from the sale.
Refinance your car loan
You may be able to save some money by switching to a lender with more competitive rates and paying off your car loan. Then you can sell your car to someone else
- Can you find better loan terms? Calculate your savings by weighing the fees and interest rates of a new loan against any additional charges from closing your old loan.
- Will you save money? Determine exactly how much you’ll save by refinancing your car loan. Check and double check it before switching loans.
Use savings, another loan or a credit card
Pay off the car loan with your own savings eliminates debt altogether. Finding a low interest credit card, a small loan or debt consolidation can be beneficial if the rates are lower and you know you can keep up with payments.
- Can you afford it? Depending on your savings, this might be the best way to pay off your car loan.
- Low interest credit cards. 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 loans. If you plan on selling the car as soon as it’s out of finance or you only have a small amount left to pay off, then a small personal loan might be suitable rather than a refinancing loan.
- Consolidate you debt. If you’re selling a car under finance, you can consolidate all of your debt to get rid of your loan and sell the car.
Discuss your options at the dealership
When you’re ready to sell your car, you have other options if you still owe money on it. Many dealers are happy to work with you to make a fresh sale — and you may even be able to get more reasonable rates.
- Upgrade. If you want to upgrade your car, many dealers will incorporate the terms of the loan into a trade-in deal, particularly if it’s the same dealer you used for your first car.
- Trade-in 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.
- Downgrade. 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.
Not sure what to do? Ask your lender
Your lender will likely have an idea of what you need to do to pay off your loan if you’re not sure which option is best. Most have worked with borrowers in this situation before and have an idea of what your best options are.
What else to know about selling a car with a loan
The value of a car can drop considerably in a few short years, so consider depreciation when taking out a car loan. Depreciation affects your ability to resell the car.
Discuss your options with your lender before selling the car. They can help you understand the conditions of your loan and your options. They may even be willing to readjust the terms of the car loan if it helps you continue the loan.