How to Sell Your Car When You Still Have a Loan

1. Determine What Your Car Is Worth

The first step to selling your car is figuring out how much it's worth. You can get a pretty good idea of its value at the Kelley Blue Book and Edmunds websites. Both sites provide forms you can use to enter the model and year, mileage, options packages, and other details about its configuration and condition. You may also be able to get an idea what comparable vehicles are selling for locally by pricing them at CarMax.com.

2. Contact Your Lender to Get Your Loan Payoff Amount

The loan payoff amount is how much you must pay to satisfy your car loan. Your loan servicer—the organization to which you make your monthly payments, which may or may not be the lender who issued your loan—will furnish this figure on request.

Your payoff amount may be less than the sum of your remaining payments because most auto loans are amortized and accrue interest over the life of the loan. Paying your loan off ahead of schedule could reduce total interest charges, meaning you'll pay less than if you'd extended your payments out through the full loan term.

On the other hand, some loan agreements require you to make a lump-sum payment, known as a prepayment penalty, if you pay your loan off early. In that case, your payoff amount could exceed the sum of your remaining payments. Prepayment penalties are unusual on car loans, but your loan servicer can advise you if you have one.

You'll need your total payoff amount to determine how much you'll need to sell your car for in order to at least break even on your loan.

3. Review Your Equity

Once you know your car's resale value and your payoff amount, you can calculate the equity you have in it—the value of the portion of the car you own outright. To do so, subtract the payoff amount from the car's resale value.

If you can sell the car for more than the payoff amount, you have positive equity in it. Conversely, if the car's resale value is less than what you owe, you have negative equity. (Another term for negative equity is being upside-down on the loan.)

You can sell a car whether your equity is positive or negative, but the way you conduct the sale and the result for you will differ somewhat.

Examples: Let's say you determine your car's resale value is $12,000, and your payoff amount is $9,000. You have positive equity in the vehicle of $3,000. When you sell the car, you can pocket that amount or put some or all of it toward the down payment on a new vehicle.

As a counterexample, if the car is worth $12,000 but your payoff amount is $14,000, you have negative equity of $2,000. If you sell the car to an individual buyer, the lender will typically collect the purchase amount from the buyer, and you must arrange to pay the lender the amount you still owe, in a lump sum or in payments over time.

Learn more: How to Deal With an Upside-Down Car Loan

4. Trade In or List Your Car for a Private Sale

Now that you know roughly how much your car is worth, and how much you'll need to pay off your loan, you can begin pursuing a private sale or a trade-in for a new vehicle. Here's what you need to know about both options.

Learn more: How to Trade In a Financed Car

How to Trade In a Car With a Loan

If you are trading in your car to a dealership with plans to buy another one there, the dealer typically handles arrangements with your lender.

If you have positive equity in the vehicle, the dealer will transfer the appropriate portion of the trade-in value to your lender to close out your loan, then take title to the traded-in vehicle so they can legally resell it.

The remaining amount—your equity in the trade-in—is typically used as a down payment for financing on another vehicle. Depending on the equity amount, the value of the new purchase and your credit standing, you may need to supplement the down payment amount with additional cash or, if you're downsizing to a significantly less expensive car, you may be able to get part of your equity amount back in cash.

If you have negative equity in your trade-in, you'll need to either include the outstanding balance on your first loan in the amount you borrow on your new purchase or pay it off in a lump sum.

Example: If your negative equity on the trade-in is $3,000 and you're purchasing a car for $22,000, you'll need to qualify for a $25,000 loan—or pay that $3,000 in cash to your lender.

If you qualify, the dealer will pay off the loan on the trade-in, obtain its title and issue a new loan through its financing arm. Before you agree to a new loan, check with your original lender to be sure your first loan has been paid in full.

Depending on your credit, prevailing interest rates and how the price of the new car compares with the amount financed on your original loan, rolling over negative equity could mean higher monthly payments and possibly a greater total cost than you had on your original loan.

Learn more: How to Trade In a Car

How to Sell a Car With a Loan

When you sell a car with an outstanding loan, you must get the lender's permission and follow their procedures for handling the sale to ensure legal title is properly transferred to the new owner. Requirements may include finalizing the sale at the lender's offices, and the process also may differ depending on whether your equity in the car is positive or negative.

If you have sufficient positive equity in the car, your lender may have the buyer make two payments—one to itself, to cover the payoff amount, and one to you, for the amount of your equity. Alternatively, the lender could collect the full purchase amount from the buyer and then issue you a payment for your equity share.

If you have negative equity in the car, the lender will collect the purchase amount from the buyer. You may then present payment for the balance of the loan or continue your regular payment schedule until the rest of what you owe is paid off. If you plan to maintain your regular payment schedule, ask the lender to apply the purchase amount against principal on the loan. Doing so could reduce the amount of interest you'll pay on the outstanding balance, and it might even reduce the number of payments you must make to close out the loan.

Learn more: How to Sell a Car With a Loan

Frequently Asked Questions

The Bottom Line

Selling a car when you still owe money on it isn't difficult, but it's a little more complicated than selling a vehicle you own outright. Make sure to communicate with your lender throughout the process, and be sure you understand your equity position and how it may affect your ability to purchase another vehicle after the sale.

If you're considering taking out another car loan, checking your FICO^® Score for free from Experian can help you understand how favorably lenders will view your application.