back to articles | February 05, 2024 | Moses Mwangi

Categories: Buying & Selling Cars

Can You Sell a Car Under Finance

Buying a new car is an exciting experience in one's life. However, you might realize you can't purchase a new vehicle outright when you weigh the pros and cons.


Getting a low-interest auto loan can be the helping hand you need to buy your dream car quickly and affordably, especially if you don't have hundreds or thousands of dollars lying around. Unfortunately, an auto loan can sometimes make things a bit hard when selling your car, particularly if you haven't fully paid it off.

Therefore, it is essential to know how to sell your car while it's still under finance, but you haven't yet repaid your car loan. Read on to learn how to sell a car correctly while it's still under finance.

Can you sell a car on finance?

The short answer is yes. As long as you notify the buyer, it's possible to work around it and legally sell a car that is still in finance. However, whether it's a good idea to sell your vehicle with an existing auto loan depends on how much is left on your loan, how much you can sell the car for, and your financial situation.

Although most lenders won't have an issue with you selling your car while it's still under finance, they will require you to pay off your loan balance once you receive the money. For instance, if you sell the car you bought for $30,000 a few years later for $18,000, you should expect to take a portion of this money to pay off the balance you still own on the auto loan.

Depending on the lender and your loan terms, you might be required to pay a break or early repayment charges when repaying your balance. Be sure to carefully read through your contract and consult your lender if you are unsure of anything.

How to sell a car on finance

Selling a car on finance is quite a common requirement for motorists today. However, the process can be a little overwhelming, as it requires extra steps compared to selling a car you own outright. Here is how to sell a car with an existing loan.

Get the loan payoff amount

The very first thing you should do is to reach out to your lender and find out the payoff amount on your loan. Due to interest, prepayment penalties, and other fees, this might be slightly higher than the current balance printed on your monthly statement.

The lender has possession of the title and legally owns the car (used as collateral in case of default) as long as you owe money on the auto loan. Therefore, you must make certain of the payoff amount before the lender transfers the car title to you. Talking to your lender will also help you know what steps to take to repay your loan and sell your car.

Determine the fair value of your car

You need to know what your car can fetch in order to sell it at a reasonable price. Determine your car's current value by visiting sites like Edmunds, Kelley Blue Book, or Carfax. These websites have tools that can factor in your vehicle's mileage and condition, though some tools might need extra details like service history and upgrades.

Potential buyers want an accurate idea of your vehicle's condition, so be honest with your information. It might add a little value to your sale if your car has an extended warranty.

Generally, you will get more for your car if you sell it to a private party than when you trade it in. Consider acquiring a purchase offer from a reputable online car seller or dealer. This is a good benchmark to beat and can act as a backup if your plans fall through.

Understand your car's equity

Car equity is the difference between what you owe on your auto loan, and what the vehicle is worth. If the value of your car is more than your total loan payoff amount, your vehicle has positive equity. On the other hand, if you owe more than what your vehicle is worth, your car has negative equity, also known as being upside down on a loan.

For instance, if your car is worth $18,000 and your loan balance is $15,000, then you have $3,000 worth of positive equity in your vehicle. On the other hand, if your car is worth $17,000 and your loan balance is $22,000, then you are upside down on your loan since you still owe $5,000.

While you can take a small personal loan to cover the difference, that would only leave you with another monthly payment and hard inquiry on your credit report. Therefore, the best thing is to refrain from taking on one debt to pay another, especially when you don't have a good credit score.

Prepare your car for sale

Before you sell your financed car, you will need to have received a written settlement figure from your lender. Once you have it, complete the pre-sale checklist to ensure you get an offer as close to full valuation as possible.

Getting your car to look its best before you show it to potential buyers will also help you sell it fast and for the best price. Here are a few things you can do to make it look more appealing:

  • Clean your car – pay for a full cleaning service to ensure your car looks spotless.
  • Conduct minor repairs – it's worth getting small dents and scratches removed, as they can reduce your buyer's offer when they inspect your car.
  • Have a spare key – a spare key can help ensure you receive a full valuation.

Get multiple offers

Get instant offers from multiple car-buying websites or use an online platform to sell your vehicle privately. As mentioned earlier, you will likely get the most money for your car by selling it privately. This is because you are dealing directly with the next owner rather than through a middleman. Use local forums like Craigslist or Facebook Marketplace to advertise your car, or check out eBay Motors.

Using an online platform is the most convenient way to sell your car. You can get an on-the-spot cash offer after providing your car’s license plate number or VIN and answering some questions about your vehicle's condition. However, selling your car online will fetch less than you likely would have in a private sale.

Enlist your lender in the sale

Once you have negotiated the best price with the buyer, get the lender involved in the sales process. Your lender holds the title to the car, and you can't sell the vehicle without it.

The lender can offer you insight into any specific instructions and requirements you will need to meet. They might also refer you to any dealers they work with directly to sell your car.

Only accept cash or an official bank check

Whether for full or partial payment of the sale price, never accept a personal check from the car buyer. A personal check is prone to bounce, in which case the buyer will have both the cash and your vehicle in their possession.

Therefore, you should only accept cash or an official bank check for payment. To be more meticulous, insist on visiting the bank with the buyer to get the official check. Keep in mind that there are Craigslist scams in which car buyers pass counterfeit bank checks that are hard to detect once they bounce.

Wrapping it up

Selling a car under finance is possible, and you even have many ways to do it as long as you work with the lender and ensure the buyer is aware of the situation. By following these simple steps, you can ensure that you sell your car legally, protecting yourself from any future complications. However, keep in mind that you are still liable for the loan, meaning you will have to keep up with your monthly payments.