No, you cannot simply sell a financed car without addressing the loan. The lender holds the title as collateral until the loan is paid in full. This means you don't legally own the vehicle to transfer it to a new owner. However, the process of selling a car with an outstanding loan is common and can be managed with careful planning.
The key is understanding that the loan must be paid off at the moment of sale. The most straightforward method is to use the sale proceeds to cover the loan balance. You first need to contact your lender to get a 10-day payoff amount, which is the exact sum needed to close the loan account, including any accrued interest. This figure is crucial for setting your sale price.
If the car's market value is higher than the payoff amount, you can proceed. For a private sale, you and the buyer would typically go to your bank or a branch of your lender. The buyer pays the agreed amount, the lender processes the payoff and releases the title, and you keep any remaining profit. If the sale price is less than the loan balance (known as being upside-down), you are responsible for paying the difference out-of-pocket at the time of sale.
Trading the car into a dealership is often easier. They handle the entire payoff process with your lender directly. They will appraise the car, and the agreed trade-in value is applied to the loan. If there's negative equity, the dealership may roll that amount into your new car loan, but this is generally not advisable as it increases your debt.
| Scenario | Sale Price vs. Payoff | Outcome | Consideration |
|---|
| Private Sale: Positive Equity | Sale Price > Payoff Amount | Loan is paid off; you receive the difference. | Requires coordination with lender and buyer for a secure transaction. |
| Private Sale: Negative Equity | Sale Price < Payoff Amount | Loan is paid off only if you cover the shortfall with cash. | You must have the funds available to complete the sale. |
| Dealer Trade-In | Trade-in Value is offered. | Dealer pays off the loan directly to your lender. | Simplifies the process but the trade-in value may be lower than a private sale. |
| Loan Assumption | Varies by lender. | A qualified buyer takes over your loan payments. | Extremely rare; most auto loans have a due-on-sale clause prohibiting this. |
Attempting to sell the car without disclosing the lien is illegal and constitutes fraud. The new owner will be unable to register the vehicle, and you would still be liable for the loan payments.
