How to sell a car under finance

It’s not impossible to sell a car that’s still under finance, but it can be tricker than selling a car you’ve fully paid off. Generally, you still have to pay off the loan before you transfer ownership to someone else. But there are a few ways to speed up that process, or pay it off after.

How to sell a car with a loan

You have two main options when it comes to selling your car with a loan:

• Selling it to a private individual
• Trading it in at a dealership

With both options, you’re still responsible for paying off the loan. With a private party, you can either pay off the loan first or use the money from the buyer to pay off your lender. With a dealership, you can sell your old car to the dealership which pays off your lender and switch in your car for a vehicle of similar value and the remaining balance from the old loan applied to the new deal.

3 ways to pay off your car loan before selling it privately

Thinking of selling your car to a private party.

1. 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.

This option might not be the best choice if your car loan is upside down.

2. Refinance your car loan first

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.

Note that this option may lead to extra fees (early repayment charges, admin fees, application fees, etc).

3. Use savings, another loan or a credit card to pay it off first

Paying 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 or 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.

3 ways to sell a car with a loan to a 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.

1. Upgrade

If you want to upgrade your car, many dealers will incorporate the terms of the loan into a trade-in deal. Especially if it’s the same dealer you used for your first car. You might end up with a larger car loan.

2. 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. If you car has positive equity, you can use that cash to buy a new car elsewhere or spend it as you like.

3. Downgrade

If your car has positive equity, you may be able to downgrade your car if you’re looking for something more cost-effective and want more money in your pocket after the trade. This might not be a good option if you owe more than your car is worth.

Take these steps before selling a car with a loan

1. Calculate how much you owe. Call the bank or lender to determine how much you need to pay to close out the loan.
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. 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.
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. 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

• Depreciation. 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.
• 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, it’s possible to roll your old balance into a new loan. This can make it easy for your car loan to become worth more than your vehicle.

Selling a car with positive vs negative equity

Selling a car that’s worth more than your loan balance is generally easier than selling a car valued less than your balance. With an underwater car loan, you’ll still be responsible for covering the difference between your loan balance and the car’s value when you sell it to a private party or dealership. To get the most out of your sale, consider investing in some improvements, or at the very least make sure it’s spotless.

Frequently asked questions

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

  It depends. You may be able to get a better price selling it privately, but the outstanding finance is more likely to be a headache and turn private buyers away compared to reselling it at a dealership.

• Should I tell buyers if a car has finance on it?

  It’s best to make it clear upfront that a car has finance on it and that you have a plan for repaying the loan. Buyers can do a history check of the car that reveals if it’s under finance or not. If you aren’t upfront about the car having a debt on it when placing an ad, it might look shady when you disclose that later.

The bottom line

Discussing your options with your lender before selling the car can help you understand the conditions of your loan and your options. It may even be willing to readjust the terms of your current loan to help you pay it off faster.

You can learn about how car financing works by visiting our full guide to car loans.

Written by

Chris Lilly

Head of publishing

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Chris Lilly is Head of publishing at finder.com. He's a specialist in personal finance, from day-to-day banking to investing to borrowing, and is passionate about helping UK consumers make informed decisions about their money. In his spare time Chris likes forcing his kids to exercise more. See full bio

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Chris has written 502 Finder guides across topics including:

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