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Can You Sell a Car That You Are Financing?

Yes, you can sell a car that you are financing, as long as you satisfy the lien. What is a lien? Investopedia gives us the following definition:

“The legal right of a creditor to sell the collateral property of a debtor who fails to meet the obligations of a loan contract.”

Basically, when you take out an auto loan, the bank or finance company is the lienholder, and they have the right to take possession of (repossess) and sell the vehicle if you do not meet your repayment obligations. Once the balance of the loan is paid, the lien is released. If you sell a vehicle that you are still financing, you must pay off the full balance of the loan. If you have negative equity in the car–meaning it is worth less than you owe–than the sale price of the vehicle may not be sufficient to pay off the loan, meaning you will have to pay the remaining balance out of your own pocket.

Contacting Your Lender Prior to Sale

This is paramount. The first step that you will need to take is to call your lender. You will want to find out what your payoff amount is, the amount of interest that accrues per diem, and how long it will take to clear the title once that amount is paid. You will need to have this information in hand in order to keep a potential buyer fully informed. If you owe $10,000 on the car, and you think you can only get $8500 selling it, then you will know you need to come up with $1500 on your own. On the other hand, if your payoff amount is less than what you can get for the car on the private market, then you are in the clear.

Once you have found a buyer, it is best to take them with you when you payoff the loan. As mentioned, if the purchase price does not satisfy your loan, you need to have the remaining balance in hand when you visit your lender. Once the loan is satisfied, there should be paperwork on hand to transfer ownership and allow the new owner to register the vehicle.

Depending on the purchase price of your car, the new owner may need to finance the vehicle. If so, the lenders involved in the process can often handle all of the paperwork for you. All you will need to do is sign a few papers.