How To Privately Sell A Car You Owe Money On – If you still owe money, you can sell your car. However, you will have to repay the loan before transferring the car to a new owner. The process differs depending on whether you are selling the car to a dealer or a private buyer.
You’ve been looking for a shiny new car, but you still owe money on your current car. So can you sell your car and still make your payments?
How To Privately Sell A Car You Owe Money On
Yes, you can sell your car if you still owe money, but you will need to pay off the loan before ownership is transferred to the owner of the car.
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You are ready to buy a new car and get rid of your current one. But there’s one catch: you still owe money on the car loan. What happens next depends on who buys your car.
If you are trading in a new car or selling it to a dealer, the car loan repayment process is handled by the dealer. When you pay for a new car (or take out a new loan), the dealer pays off part of the old loan, usually by sending money to your bank or credit card. If you trade in your car and the dealer values it for more than what you owe, you can pay the difference or put more money towards a new car.
When the car is sold or sold to a dealer and the loan is paid off, the lender releases the lien on your car. Under the contract, the lender has title to your car and is its legal owner until the loan is repaid. This allows the lender to sell your car if you default on the loan.
The situation is even more difficult if your consideration is less than what you owe. In that case, the dealer will usually “roll over” the amount you owe on your current loan to the new car loan. Paying off an old debt.
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If you sell your car to a private buyer and still have a loan, the situation is even more complicated. Ownership cannot be transferred to the customer until the loan is repaid.
In a private transaction, you may want to complete the sale on behalf of the current owner (such as the bank or credit union where you obtained the car loan). In this way, the money obtained from the customer can be used to repay the loan and immediately transfer ownership of the car to the customer.
Another option is to have the buyer pay off your loan. However, many lenders do not allow this. And if the lender approves, the buyer must meet the lender’s requirements for a new loan, including a minimum loan amount and a maximum loan-to-income (DTI) ratio.
No matter which auto dealership route you choose, be sure to ask your lender about payment penalties, title requirements, and other information.
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When you are selling your car and still owe on it, you need to consider whether your health is good or bad. Positive equity means you owe less than the car is worth based on its market value, but negative equity means you owe more than the car is worth.
For example, if you owe $15,000 on a car loan, but the consideration is $17,500, you’ll have $2,500 of goodwill (the value of the purchase exceeds the amount of the loan).
If you sell the car to a reputable dealer, they will usually take care of paying off the loan. If you sell a car in good condition to a private buyer, you use the proceeds from the sale to pay off the loan and then pay the difference.
Now, if you owe $17,500 on a car loan and the sale price is $15,000, you will be left with bad debt of $2,500 (the loan balance minus the sale value). This is also known as fixed debt.
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With good equity, selling your car can make a lot of sense. You can make more money selling a car to a private buyer than from a dealer, but selling with a dealer is often easier. It doesn’t matter who the customer is, as long as you are in good health, you will make money from the business.
What if you have negative equity? You may want to hold off on selling your car until your equity goes from negative to positive. Alternatively, you might consider buying a cheaper car (if your dealer plans to apply the remainder of the original car loan to the new loan) to reduce some of the effects of bad equity. You can also consider selling the car to a private buyer instead of a dealer, as you can get a higher sale price to offset the negative equity.
If you have a car loan, read the loan agreement before selling or trading the car. Once you’ve decided how you’re going to pay off your current loan, you may want to look into a new car loan. When considering loan options, check your credit score and credit report to see how you stand financially.
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Edited by Pippin Wilbers Edited by Pippin WilbersArrow Right Editor, Auto Loans Pippin Wilbers is the Auto Loans Editor. Pippin is passionate about demystifying complex topics like auto financing and helping borrowers stay informed about changes and borrower concerns. Connect with Pippin Wilbers on LinkedIn Linkedin Connect with
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