How to Sell a Car if You Owe Money on the Loan

If you owe money on a car loan but want to part ways with the vehicle, you have options. Assuming you have a secured car loan, you’ll need to pay off the loan. You can do so in one of several ways:

1. Pay off the loan with cash

If the remaining balance on the loan is small enough that you can cover it, do so. You’ll get the title back from the lienholder and can easily sell the car through a private party transaction. Typically, you’ll get a better price for your vehicle if you sell it privately as opposed to trading it at a car dealership.

2. Trade the car in at a dealership and tell them you owe money on the loan

Truthfully, the majority of new and used car purchases at car dealerships involve a trade-in vehicle that isn’t paid off. Dealerships can make the transaction seamless for you if their salespeople and finance managers are experienced and good at their jobs.

3. Sell the car to a private party

If your title is held by a local bank or credit union, you may be able to meet the buyer at the bank to pay off the vehicle and sign the title over to them on the spot after they hand over the cash. Otherwise, the process could get more complicated. Buyers may hesitate to purchase a vehicle if you don’t have the title in hand.

What to do if you owe more than the car is worth

If the payoff amount on your loan is more than the car’s trade-in or private party value according to Kelley Blue Book or NADA, you are “upside down” on your loan. This means you owe more money on your car loan than the vehicle is worth.

How car dealerships deal with upside down loans

Dealerships handle this by calculating the difference between the loan’s payoff amount and the amount of money they are willing to offer you as a trade-in for a car on their lot.

So, if your loan balance is $14,000 and the dealership is willing to give you $10,000, you’ll have a $4,000 outstanding balance. If you can’t afford to write a check for $4,000 to the dealership, they may be able to add that amount of money to the loan for the car you purchase from them.

Your other option is to simply continue to drive the car until the loan is paid off. This is the smartest way to handle being upside down on a loan if you can’t pay off the loan in full.

Sometimes, high insurance rates, poor gas mileage, or ongoing repair bills make it impossible to continue to drive a vehicle. If your car is just too expensive to drive, you may need to get an unsecured personal loan for the balance that remains after you sell it.

How to use an escrow service when selling a vehicle

If you have the opportunity to sell your vehicle to a private party, but your title isn’t easily accessible, you can use an online escrow service to facilitate the transaction and keep both you and the buyer safe.

For a fee, the escrow service will hang on to the buyer’s money until the title is available. They’ll communicate with the loan company to let them know that a sale is in process. When they receive the title, they’ll release the funds to you.

So, the buyer doesn’t get the title until they deposit the agreed-upon amount of money into the escrow account. The seller doesn’t get the money until the title is on its way to the buyer.

Owing money on a car that you want to sell isn’t as complicated as it sounds. There are tried-and-true ways to get out of this financial conundrum and move on with your (driving) life.