Regardless of the current market, selling your car for an amount you’re happy with can be a challenge. When you add in the fact that the car you’re trying to sell is still under a loan, this can make selling even more challenging. You may be wondering why someone would decide to sell their vehicle before paying it off, well there are plenty of good reasons. Perhaps, your financial situation has changed and you can no longer afford to make your monthly payments. Maybe your work allows you to work fully remotely so you no longer need a car without having the daily commute. Or maybe you need to change vehicles because your current vehicle doesn’t suit your lifestyle. Whatever your reason may be, it’s important to know that there are plenty of options to sell a car with an active loan. In this article, we’re going to cover everything you need to know about selling a financed car.
Where Do You Sell a Financed Car?
If you’re looking to sell your financed car, you really have three main options, you can sell the vehicle privately, to an online retailer or trade-in your vehicle at a dealership.
Selling Privately
Depending on your situation and personality, you may decide that selling privately is the best option for you. Typically, selling privately can result in making more money on the car, but it usually requires more effort. Selling privately means cleaning your car, taking great pictures of it, posting the listing and doing the necessary advertising.
However, when we add the factor of it being a car still under a loan term, this can make selling considerably more difficult. Most used car buyers want a smooth and simple experience without extra complications and paperwork that come with a financed vehicle. Most lenders won’t buy a used vehicle unless it has a clean title, meaning you’ll likely need to clear the loan before transferring the title.
Selling to an Online Retailer
In the last ten years especially, online retailers have become an increasingly popular place to both sell and buy used cars. An online retailer is essentially a dealership without a showroom, instead of a showroom all of the inventory is posted to their online marketplace.
The beauty of online retailers is that they’re extremely flexible in their dealings. They would have no problems taking care of the necessary paperwork in order to buy a car with an active loan attached to it. If there is an outstanding loan on the car, they would pay out the remaining balance of the loan and pay you the difference. In order for them to appraise your vehicle, they’ll ask for a few basic details. Once a deal has been agreed upon, they’ll come to you to pick up the car and pay you.
Selling to a Dealership
Typically, dealerships aren’t actively looking to buy used cars off of customers unless it’s for a trade-in, but right now that’s not the case. The global chip shortage has caused massive inventory issues in the automotive industry so many dealerships are looking to buy used vehicles. So if you’re in a position where you don’t need a car and you’re looking to get a good deal on selling it, right now is the time.
All you’ll have to do is take your vehicle into the dealership and have it appraised and from there you can decide if you want cash for it or if you want to use it as a trade-in. If there is still an active loan on the car, the dealership will figure out a way to deal with the outstanding balance.
Is it Smart to Sell a Financed Car?
There is no one correct answer to this question as it is entirely based on the circumstances. Arguably, the biggest thing you should consider before selling a car with a loan attached is whether you’re in negative or positive equity on the loan. Having negative equity on a car loan means you owe more money than the overall value of the vehicle.
In order to determine the total amount you owe on your car loan, you can ask your lender for the payoff amount. The payoff amount shows you the remaining balance on your loan and how much it would cost you to buy the car outright.
Once you know the payoff amount, you’ll need to find out the true value of your vehicle. We recommend using either Canadian Black Book’s or Kelly Blue Book’s car valuation tool. Now that you have both of these numbers, figure out if you’re in negative or positive equity and act accordingly. We’re not necessarily saying you shouldn’t sell your vehicle if you’re in negative equity but it is something you may want to consider avoiding if possible.
3. Steps to Selling Your Financed Car Privately
1. Find Out Your Car’s Value
The first thing you need to do before selling your car is to find out the value of your vehicle. We listed two-car valuation tools already: Canadian Black Book and Kelly Blue Book. Both of these are great options to look at before selling privately, to an online retailer or dealership. It’s also not a bad idea to get your vehicle appraised by a few dealerships to see how their valuation differs from the online valuation tools.
2. Determine The Payoff Amount
Once you have both the value of your vehicle and the payoff amount, you’ll be able to determine whether you’re in a negative or positive equity loan. Finding out the payoff amount is as simple as asking for it from the lender. Whether you call your lender or email them, they should be able to get you this number fairly quickly.
3. Pay Off The Remaining Balance (If possible)
In an ideal situation, you’d be able to pay off the remaining balance of the vehicle before selling it privately. Even if it means keeping the vehicle for an extra year to give you time to finish your payments, you should consider taking this route. Not only will it make the selling process less complicated but it will likely result in you getting more money for your vehicle.
