Yes, you can sell a car that still has a loan on it, but the process is more complex than selling a car you own outright. The key challenge is that the lender holds the title (the legal document proving ownership) as collateral until the loan is fully paid off. This means you cannot transfer the title to a new buyer until the lien is released.
The most common method is to use the sale proceeds to pay off the loan balance at the time of sale. This typically happens in one of two ways. If the sale price is higher than your loan balance, you can arrange for the buyer (whether a private party or a dealership) to meet you at your bank's local branch. The buyer pays the bank directly, the bank releases the title, and you receive any remaining profit. If you're selling to a dealership, they are experts at handling this and will pay off your lender directly, often simplifying the process.
However, if you owe more on the loan than the car's current market value—a situation known as being "upside-down" or having negative equity—the transaction becomes more difficult. You will need to cover the difference out-of-pocket to pay off the loan in full before the title can be released. It's crucial to contact your lender first to get a 10-day payoff quote, which is the exact amount needed to settle the loan, including any per-diem interest.
The table below illustrates common scenarios based on a car with a current market value of $15,000.
| Scenario | Loan Balance | Sale Price | Financial Outcome | Action Required |
|---|
| Positive Equity | $12,000 | $15,000 | $3,000 Profit | Pay off loan at sale, keep the difference. |
| Break-Even | $15,000 | $15,000 | $0 Profit | Entire sale price goes to the lender. |
| Negative Equity | $17,000 | $15,000 | $2,000 Shortfall | Must pay $2,000 from savings to complete sale. |
| Dealer Trade-In Offer | $16,500 | $13,500 (Offer) | $3,000 Shortfall | Shortfall is often rolled into a new car loan. |
Before listing the car, get a precise payoff amount from your lender and research its true market value using sources like Kelley Blue Book or Edmunds. This preparation ensures a smooth transaction and prevents last-minute surprises.
