Selling a Car Under Finance: What You Need to Know

November 16, 2023

Have you ever wondered about the process of selling your financed car? Are you navigating the complexity of financial transactions?

You’re not alone. In a world where every dollar counts, understanding the ins and outs of selling a vehicle tied up in financial obligations can be the key to unlocking financial freedom. Did you know that, on average, many car owners are unaware of the potential challenges in selling an encumbered vehicle?

It’s a fact that highlights the importance of resolving the mysteries surrounding financial institutions and the sale of encumbered assets.

Join us as we look into the fascinating process of selling a financed car and equip you with the knowledge to make informed decisions.

Can You Sell a Car Under Finance?

Can You Sell A Car Under Finance?

If you’re currently paying off a car loan, you might wonder whether it’s possible to sell your vehicle before the finance contract is up. The good news is that it’s perfectly legal to do so, although there are a few factors that you need to consider before taking this step.

The first thing that you need to determine is whether or not your vehicle is encumbered, meaning that there’s still money owing on the car through the finance agreement. If this is the case, you’ll need to make arrangements with your lender to pay off the outstanding balance before selling the car.

This means that any prospective buyer will need to pay the full amount of the car’s purchase price to your lender, who will then release the finance lien and provide you with the remaining funds.

Another key consideration when selling a car still under finance is the potential impact on your credit score. If you cannot pay off the outstanding balance and your lender is unwilling to work with you.

The contract may be terminated early, which can negatively affect your credit rating. It’s also important to ensure you know of any additional break fees or charges that may be incurred due to selling the car early.

Steps to Sell a Financed Car

Steps To Sell A Financed Car

Selling a financed car can be tricky, but you can ensure a smooth transaction with careful planning and preparation. Here are the steps you need to follow:

1. Find Your Car’s Market Value

Before you sell your car, it is important to know how much it is worth. Look online at websites like Kelley Blue Book,, Carfax, and to find out the value of your car using their tools.

These tools will consider the mileage and condition of your car when calculating its value. You may need to provide more information, like service history or upgrades, for a better estimate.

You will need to enter info like the year, make, model, mileage, and condition. You may also need to type in the vehicle identification number (VIN). This helps determine your car’s exact value, including its history, condition, and location.

2. Get the Loan Payoff Amount

The payoff is the total sum required to pay off your auto loan. It includes the principal amount and the accrued interest charges throughout the period. Typically, the payoff amount is valid for a specified number of days, ranging from three to ten. If you continue looking for a buyer after the period expires, request a new payoff amount to ensure accuracy.

It is essential to inform yourself that your lender may charge prepayment penalties if you pay off your car loan before the due date. Though prepayment penalties are not common, they are legal in many states. Therefore, checking with your lender if your payoff includes a prepayment penalty is crucial. If there is any penalty, it would add up to the total payoff amount, which you need to pay to your lender.

3. Ask Your Lender for Instructions

The third step is to ask how you should complete the car sale. Depending on the type of lender you have, there may be specific instructions you need to follow.

If you’re dealing with a local bank or credit union, a representative may request that you bring the buyer in person to a local branch where you’ll sign the paperwork. This process helps ensure the loan is paid off correctly and both parties have a smooth transaction.

On the other hand, if your loan is from an online lender, the lender will typically have a network of banks available for you to use. In this case, you’ll need to bring the buyer to a specific location and complete the sale there. Once you’ve paid off the loan, the lender will release the lien and send you the car’s title.

Selling your car to a dealership in person or trade-in your car online is possible. If you choose this route, the dealership can work directly with your lender. However, checking with your lender for specific instructions is still important before proceeding.

4. Determine Your Equity

To determine your equity in your vehicle, you will need to gather the current value of your car and the remaining amount of your auto loan. If the value of your car is higher than the remainder of your loan, you have positive equity. If the remaining amount of your loan is higher than the value of your car, you have negative equity.

Positive equity is the ideal scenario, as it means you have an asset worth more than you owe. You can sell your car for its current market value and use the proceeds to pay off the loan, thereby pocketing the difference. This extra cash could be used to pay debts, invest in other assets, or make a down payment on a new car.

On the other hand, negative equity in your vehicle can be a challenging situation. It means you owe more on your loan than your car is worth and will need to pay the difference out of pocket if you intend to sell it.

This could pose a problem if you are in a situation where you need to sell the car quickly, such as needing cash for an emergency or unexpected expense. Or if you decide to trade in the car for a new one, the negative equity will be rolled over into the new car loan, making it more expensive.

5. Find a Buyer

You need to find a buyer when you want to sell your motor. Ask people you know, like family, friends, coworkers, and neighbours, if they want to buy it. You can also post pictures of your car on social media with details about the make, model, and year.

Include any special features, such as upgrades, too! Another way is to list your car on websites like Gumtree or Autotrader with all the details and asking prices. These websites usually have lots of people looking for used cars!

6. Work With Your Lender To Complete the Sale

Now, you and the buyer have agreed on a price. It’s time to go to the lender. The lender will have a bank where you can finish the sale. You and the buyer will fill out forms, pay off your loan, and give them the car title for the new owner.

If you owe more than what you got for the car, you need to pay that difference before they give it to them. But if you made money on it, they’ll pay what they owe and use it to repay your loan.

Then they’ll hand over their keys! If negative equity is involved, everyone will work together so everything goes smoothly.

Tips for a Smooth Sale

Tips for a Smooth Sale

Transparency With Potential Buyers

When selling a financed car, transparency is key for a smooth sale. Potential buyers have the right to know if the vehicle they are considering purchasing is still under finance. Failing to disclose this information can lead to legal and financial complications for the seller and buyer.

Not only does transparency help build trust, but it can also speed up the sales process. By letting potential buyers know about the outstanding finance, they can make an informed decision and take necessary steps to secure financing or seek alternative options. This helps to avoid any last-minute surprises or delays in the sales process.

Accurate Listing For Your Car

When you are selling a car that has been financed, it is important to make sure the listing is accurate and detailed. You should give potential buyers lots of information about the car so they can decide if it is what they want. Include things like the make, model, and year of the car.

If there are special features or trim packages, let them know. You should also include photos showing any scratches or dents on the outside and inside of the car and any repairs or upgrades you have done to it.

Keep Communication Open

It is important to talk to potential buyers. Reply quickly if they have questions or need updates. Provide lots of details in your listing so people can make an informed decision.

Be honest about the car’s condition and inform them about any dents, scratches, or problems. This helps everyone know what they are getting into before the sale.

Be Prepared To Negotiate

When selling a car that you still owe money on, it is important to be ready for negotiations. Some people may use the fact that you have yet to pay off your car to get a lower price. Research before listing your car for sale to ensure everything goes smoothly and your finances are safe.

Look at the prices of similar cars in your area so you can set a fair price and know how to explain the value of your car to potential buyers. Also, contact the lender who gave you the loan and ask them how much it would cost to pay off the loan, including interest or fees. Knowing this will help protect your finances during negotiations with buyers.

Selling A Car Under Finance Common Challenges and Solutions

Selling A Car Under Finance Common Challenges and Solutions

Handling Negative Equity

Negative equity happens when the money you owe for your car is more than your car is worth. This can happen if you buy an expensive car or have a loan with a high-interest rate.

There are ways to manage negative equity. Refinancing the car loan means getting a new loan with better terms and lower interest rates, so it’s easier to pay off the debt.

Dealing With Outstanding Payments

If you still owe money on your car, it can be hard to sell it. People might only want to buy a car if they know how much money is still owed. They may also worry that the car could be taken away if payments are not made.

Pay off any remaining payments before listing it for sale to ensure you can sell the car. Talk to the finance company and ask how much needs to be paid off so that you fully own the car.

You have options for paying–you can pay all of it immediately or set up a payment plan. Think about what works best for you and choose that one.

Ensuring A Proper Transfer Of Ownership

When selling a car with a loan, it is important to transfer ownership correctly. The lender owns the car until the loan is paid off. You need to clear any outstanding balances to get the documents from the lender.

Ensure you pay the correct amount so there are no legal problems later. Both parties must sign a bill of sale, and then you give the buyer a copy of the title transfer. The bill should say how much was paid and when it was bought.

Frequently Asked Questions

Can I Sell A Financed Car?

To transfer ownership, you must pay off the loan. You will need to give the lender money if your loan balance is more than what you got from selling your house.

Can I Sell A Car With Outstanding PCP Finance?

You need to finish paying this before you can sell the car. PCP finance means paying a deposit and then making regular payments for a set period. This pays off the value of the car as it goes down.

Can I Sell A Car I’m Paying Off With A Personal Loan?

You can still sell a car you are paying off with a personal loan. However, you will need to give the full loan amount to your lender before they give you the car title.

What Happens If I Sell A Car With Outstanding Finance?

If you sell a car that still has money owed, you will need to pay money from the sale to back the finance company what you owe.

Does Voluntary Termination Of Car Finance Affect Credit Rating?

If you end your car loan early, it will not affect your credit score. You can get rid of the long-term agreement for your car this way.


Selling a vehicle encumbered with financial obligations may seem daunting, but armed with knowledge, you can confidently navigate the process. And here’s the exciting news – if you want to trade in, upgrade your ride or part ways with your encumbered car hassle-free, look no further than Mad Man Motors.

Our team understands the intricacies of personal property transactions and specializes in seamless trade-ins. With a commitment to transparency and customer satisfaction, Mad Man Motors offers a hassle-free experience, allowing you to transition smoothly into your next adventure on four wheels.

Refrain from letting the complexities of selling an encumbered car hold you back. Trust Mad Man Motors to simplify the process and provide a fair deal. Your journey towards a new and unencumbered driving experience starts here. Contact us today and let the experts at Mad Man Motors turn your car-selling experience into a thrilling ride!

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