How to Sell a Financed Car

Selling a financed car can seem like a daunting task, especially when navigating the complexities of car loans and the financial obligations associated with them. Let's talk about the ins and outs of how to sell a financed car, addressing essential questions and guiding you through the process.

First and foremost, when you're selling a car with a loan, the outstanding balance on the loan is a crucial factor. You might still owe money on your auto loan, but don't let this deter you. The first step is to contact your bank or credit union to determine your loan balance and payoff amount. Remember, the payoff amount might be higher than the outstanding loan balance due to accrued interest and any prepayment penalties.

Know Your Car's Worth

It's not enough to know if you owe money on the car; you also need to know what your car is worth before you start the buying process. The vehicle's value is not always equivalent to the remaining loan balance. You can obtain an accurate assessment of your car's worth from vehicle valuation sites like Kelley Blue Book. Be ready with your vehicle identification number (VIN) and other details to get a fair price estimate.

Negative and Positive Equity - What It Means for You

One key concept to grasp when selling a financed car is the idea of equity. Equity is the difference between what you owe on your car loan and what your car is worth.

If your car is worth more than your remaining loan balance, you have positive equity. On the other hand, if you owe more than your car's worth, you have negative equity. Understanding whether you're dealing with positive or negative equity is essential in deciding the best course of action when it comes time to sell a car.

Private Sale

When it comes to selling a car to a private party, you have the advantage of potentially getting a higher price. In a private party sale, you deal directly with the buyer, bypassing any middlemen. However, you must be aware that you and the private buyer will be responsible for all the paperwork, which can be tedious and time-consuming. You also have to deal with any private sales tax on your own.

It's very easy to get something wrong, too, so be sure to research all the requirements for your state and municipality. Your local bank or credit union will only transfer the car's title to the new owner once they receive the full payoff amount.

Selling a car privately with negative equity means you'll have to make up for the negative equity amount out of your own pocket. For instance, if your car is valued at $10,000, but your loan payoff amount is $12,000, you'd have to provide the $2,000 difference to pay off the loan completely before the car title can be transferred to the private party you're selling to. It might be more advantageous to obtain a personal loan to cover this difference, especially if the interest rate is lower than your current auto loan.

Preparing for the Transaction

The transaction to sell your car typically involves you, the buyer, and the loan officer, who will perform the transaction and sign over the car’s title to the buyer. Be sure to ask your lender what you and the buyer need to provide—such as paperwork and money for the sale—to make the transaction as smooth as possible??. It's not at all uncommon for buyers to arrive at these transactions only to find they're missing key paperwork and have to arrange another appointment to get it done, which risks losing you the sale entirely.

In a private sale, the lender must receive the payoff amount in full before the loan officer can sign over the title to the buyer. If you have positive equity in the vehicle, the lender will write you a check for the difference. If you have negative equity, then you’ll have to give the lender the difference out of pocket before the representative will sign over the title to your buyer?.

Types of Paperwork

The specific documents you'll need will vary according to your unique situation, so use the following only as a general guide. If you're trying to sell a car privately, be sure you check with the city, the DMV, and your local bank or credit union to make sure you haven't missed something.

Loan Documents

You'll need is all the relevant information about your car loan. This includes your current loan balance and payoff amount, the name of your lender, and your loan account number.

Car Title

The car title, also known as the "pink slip," is the document that establishes the ownership of the car. If you have a loan, the lender will have the title until the loan is paid off.

Bill of Sale

A bill of sale is a document that records the transaction between the buyer and the seller.

Vehicle History Report

While not always required, a vehicle history report can be helpful to show to potential buyers.

Release of Liability

This is a form that you submit to the DMV. It releases you from liability for anything that happens with the car after the sale.

Odometer Disclosure

Federal law requires that you disclose the car's mileage at the time of sale. This is typically done with an Odometer Disclosure form.

Warranty Documents

If your car is still under warranty, you'll need to provide the warranty documents to the buyer.

Dealership Trade-In - The Simplified Approach

Opting for a dealership trade-in can simplify the process significantly. The trade-in value of your car is applied towards the purchase of a new vehicle. If your car has negative equity, the dealer can incorporate the remaining amount into your new car loan. This route saves you all the hassle of dealing with paperwork and finding a private buyer.

When you trade in a car with a loan, the dealer will handle the existing loan payoff. If the trade-in value is more than your outstanding loan balance, that excess goes towards the purchase of your new car, reducing your new loan amount. However, if you have negative equity, the dealer will add this deficit to your new car loan.

Benefits When You Sell a Car at the Dealership

Selling a car to a dealership can offer a number of benefits, particularly in terms of simplicity and convenience. Here are some of the advantages that can come from choosing this route:

Buyer Protection

In many instances, selling to a dealership can offer a degree of buyer protection that isn't always available with private sales. This can include assurances related to payment and the transfer of ownership.

When selling to a dealership, the seller often receives payment before the vehicle is released, reducing the risk of scams or non-payment that can sometimes occur in private sales?. The financial transaction is typically straightforward and secure. Dealerships are established businesses with regulations and legal obligations to uphold. This makes it far less likely that you'll encounter a bounced check or other fraudulent payment issues that can sometimes occur in private sales.


Selling a car to a dealership can be a quick and convenient process. In contrast to selling a car to a private party, which can require significant time and effort, a dealership can often provide an offer rapidly after evaluating the vehicle.

This can save sellers the effort of advertising the car, meeting with potential buyers, and negotiating the sale price. Selling a car privately can involve significant time and effort. You have to advertise the car, respond to inquiries, arrange meetings for test drives, and negotiate on price. Selling to a dealership eliminates all of these steps. After the dealership evaluates your car, they will typically make an offer on the spot.


When you sell your car privately, you often have to meet strangers, potentially multiple times, to show them the car and take them for test drives. This can present safety concerns. In contrast, when you sell to a dealership, you're dealing with a professional business in a public place, eliminating the safety risks associated with meeting unknown buyers.


One of the benefits of selling your car to a dealership is that it can often be paired with the purchase of your next vehicle. Dealerships generally have a wide variety of new and used cars to choose from, all in one location.

This makes it easy to immediately transition into a new vehicle, and the value of your current car can be used as a trade-in, reducing the price of your new car.


Dealerships typically handle all the necessary paperwork, removing another potential hassle from the seller's plate. Dealerships have experience with all the paperwork involved in selling and buying cars, so they handle all the necessary documents, which can be a complex process.

The Impact on Your Credit

A concern for many is whether selling a financed car will hurt their credit. Generally, selling a car—be it privately or through a dealership—should not negatively impact your credit score. It might even improve it if you manage to pay off your existing auto loan completely.

It can temporarily drop your credit score by a few points because you’re essentially closing a credit account when you pay off your loan, potentially affecting your credit mix and the average age of your accounts; however, the impact is normally minimal.

However, if you have negative equity and choose to roll the remaining balance into a new car loan, it could increase your debt-to-income ratio. This increase could potentially affect your credit score.

Other Options

While it's possible to sell a car with an existing loan, some people may opt to pay off the loan before listing the car for sale. Doing this can simplify the process. Alternatively, you can also choose to refinance your auto loan with a personal loan, which could potentially make it easier to sell your car without having to wait for the end of your auto loan’s repayment term?.

Bear in mind that each person's situation can be unique, and the best decision depends on various factors, including the current value of the car, the remaining balance on the loan, the terms of the loan, personal financial circumstances, and the urgency to sell the car.

In all scenarios, it is crucial to maintain clear and transparent communication with all parties involved in the transaction, especially the potential buyer and the lender. This helps ensure a smoother process and avoids potential misunderstandings or complications.

Need to Sell a Car with a Loan?

Selling a financed car is not as complicated as it might initially seem. By understanding the details of your car loan, knowing your vehicle's worth, and considering your equity, you can make an informed decision. Always weigh all the options against your personal financial situation and needs. With careful planning and preparation, you can successfully navigate the process and make the most out of your sale.

Remember, each individual's situation is unique. If you're looking for a fast, simple way to sell a car, contact us at Landmark Dodge Chrysler Jeep RAM at 816-836-0100.

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