Step-by-Step Process for How to Sell a Car with a Loan or a Lien

You want to sell your car. If you own it outright – whether you bought it with cash or have paid off your loan – then the process is a simple one.

At Addition Financial, we work with our members every day, helping them buy cars. One of the questions we hear most often is this:

“What are the steps to selling a car with a loan?”

The good news is that you can sell your car, even if you have a loan or a lien. Keep in mind that the loan is the money you borrowed to buy your car. A lien is what gives the lender the legal right to seize your car if you don’t make your payments. Here are the steps you should follow to sell your car if you have a loan or lien.

Step 1: Determine the Value of Your Car

We recommend starting with the value of your car because if you can’t get enough money from the sale to pay off your loan, it may not make sense to sell it yet.

There are a few methods you can use. Keep in mind that what you want is the private seller value of your car. That’s often a higher amount than either the Kelley Blue Book value or what a dealer would give you if you traded your car in.

We suggest starting with the Kelley Blue Book value and checking Edmunds as well. It’s a good way to get a base number to start. You should be able to adjust the price up if your car has been well-maintained and hasn’t been in any accidents. Popular makes and models will fetch a higher price than less popular vehicles.

Likewise, you’ll need to adjust the value down if you have been in an accident, you don’t have complete maintenance records or you smoked in the car.

Step 2: Get a Payoff Amount from Your Lender

Once you know the approximate value of your car on the private market, you should contact your lender and tell them you’re thinking of selling your car. Ask them to send you a payoff amount.

The most important thing you need to know about the payoff amount is that it is not the same as the loan balance. A payoff tells you how much you will need to pay off your loan as of a specific date. It’s common to request a payoff that’s at least 10 to 30 days out from the day you request it. That way, you have time to sell your car and you won’t need to go back to your lender for an updated payout.

The reason the payout and balance are different is because of interest. You pay interest on your car loan and that’s what makes the payoff amount change from day to day.

Step 3: Calculate Your Equity in the Car

Now it’s time to determine whether it makes sense to sell your car. There are two possible scenarios:

The payoff amount is less than the private market value of your car; or
The payoff amount is greater than the private market value of your car.

If the first statement is true, you can sell your car and – provided you get the price you hope to get – you’ll pocket whatever money is left after you pay off your loan.

However, if the second statement is true, it means that you are “upside down” on your car. Even if you sell it for the highest price you think you can get, you will still owe the bank money to satisfy the loan before you can transfer the title to a new owner.

As a rule, it may be better to wait to sell your car if you’re upside down on the loan. You may decide that you still want to sell, but in that case you’ll need to be prepared to pay whatever is left of the payoff amount at the time of the sale.

Step 4: Find a Seller and Negotiate a Price

Assuming that you’re interested in making a private sale, you’ll need to list your car on a site such as Cars.com, Autotrader or eBay Motors.

Because you have an outstanding loan, your goal should be to get more than the payoff amount for your car. That may not always be possible, but at least it gives you a benchmark. Even if you know you’re probably not going to get the amount you want, you should still aim as high as possible to minimize the amount you owe your lender after the sale.

Make sure to do some due diligence on the seller. Avoid anybody who wants to pay in installments or who makes excuses about why they need the title before they give you the money. You should insist on a payment method that’s safe and secure.

Step 5: Choose a Place to Finalize the Sale

When it’s time to finalize your sale, you have several options. You should choose the one that makes the transaction simple and secure.

You do have the option of trading your car in at a dealership, but that usually means you’ll get less for it than you would in a private sale. It simplifies the loan aspect of the transaction because the dealer will most likely be willing to fold any amount you owe after the trade-in into your loan for your new car. Just keep in mind that a dealership loan may not be your best bet.

Here are the options if you decide to sell your car privately:

Execute the sale at your lender’s office. If you and the buyer are both local and you can make an appointment at your lender’s local branch or office, this is the simplest way to complete the sale of your car. The seller can wire money directly to your lender to satisfy the loan, and the lender can release the lien, give you documentation that the loan is paid and transfer the title to the new owner – all in the same meeting.
Execute the sale at a place designated by your online lender. If your car loan is through an online lender, then you will need to contact them to let them know you’re selling your car. They may direct you to a local financial partner to complete the transaction or you may need to use the next option.
Have the buyer wire money or send a cashier’s check directly to your lender. If you can’t have an in-person closing, this is probably your next best option. It offers some peace of mind for the buyer since they know that the loan is being paid. It also simplifies matters for you because you won’t need to take responsibility for receiving the money and getting it to your lender.

We want to point out that it’s possible a buyer will ask to use an escrow account, but that can be a red flag. According to LeeAnn Shattuck, The Car Chick, many escrow services are scams. They’ll also charge a fee which can cut into your profits on the sale of your car.

Step 6: Clear the Title

Once your lender has received payment in full of the loan, then the next step is for them to clear the title to the car and provide a cleared Certificate of Title to you.

The certificate confirms that you have no further financial obligation to your lender and that they have released their lien on your vehicle. The buyer needs the title because it shows they own the car free and clear.

The Certificate of Title must be signed by both you and the buyer to complete the sale and transfer the title of the car to the new owner. It’s a good idea to have your signatures notarized.

Step 7: Complete All Necessary Paperwork

The final step is to find out what paperwork is required by your state DMV and file it. Most states will require an odometer reading and a Bill of Sale. You can find the requirements in Florida here.

Do not delay filing the necessary paperwork with the DMV. In many states, there’s a window of between five and ten days to file the paperwork. If you miss the deadline, you may be liable for fees and penalties. You will also be responsible for anything that happens in your car, including any accidents or injuries.

The final piece is to contact your insurance carrier and either cancel your policy or amend it to remove the vehicle that you have sold. Your insurance carrier should give you a pro rata refund of any premiums you paid that apply to the period after the sale.

It isn’t difficult to sell a car if it has an outstanding loan or lien. The primary thing to remember is that you have an obligation to your lender. Keeping them in the loop will ensure that everything is done properly and that the new owner has a clear title to the car.

If you’re buying or selling a car, Addition Financial can help. Click here to learn about our competitive auto loans.