It’s not illegal to sell a vehicle with a lien on it, as long as the sale allows you to pay off the loan and transfer the title to the new owner. Remember, if you still owe on a vehicle, the lender owns the car and, in most states, holds the title.
Many states make it illegal to sell a vehicle without a title. If you’ve lost the title, getting a replacement is a relatively simple process. But if you don’t have a title because you didn’t pay off your loan, you’ve just sold a stolen car – which is certainly illegal.
Is Your Vehicle Worth Selling?
To make selling a vehicle worthwhile, you’ll want to make sure it has equity. There's only equity if you owe the lender less than the vehicle is worth. When you sell the car, anything left after the loan is paid off is profit. If there’s no equity in the vehicle, it can still be sold, as long as it’s sold for the amount owed. In this case, the advantage is that you’ll no longer have to make loan payments.
If there’s negative equity, however, selling the car may not be worth the trouble, unless you can cover the difference between the sale price and your loan balance.
Two Options for Selling Your Car
You have two options for selling a car: a dealer or a private sale. Selling a car to a dealer can be much less complicated than selling it yourself. When you bring your car to the dealership, they’ll appraise it, pay off the existing loan, and give you a check for any remaining money (unless you use it as a down payment on another car).
The dealer will receive a release of lien letter from your lender, which allows them to resell the vehicle. If you’re in a title-holding state (all but nine states are title-holding), the title will be sent to the dealer. Otherwise, you’ll bring in the title and sign off on it when the dealer buys your car.
Selling a vehicle privately may take a bit more work before the sale. The good news is that you may be able to sell the vehicle for a higher price in a private sale situation.
DMV.org recommends including lienholder information in any advertising you do for the sale of the vehicle, but this is rarely done. You should be upfront about your lien information in person, however. Once you’ve found a buyer and struck a deal, both you and the buyer should visit the lender together, so the buyer can present them with a check for the outstanding balance. The lender will give you a check for the amount you’re owed from the sale and the title will be signed over directly to the new owner.
Now That You Need a New Car
After you’ve successfully sold your vehicle, you’ll most likely need a new car. If bad credit is holding you back, you’ll need a special finance dealer so you can be helped by a lender trained in helping people with damaged credit. If you’ve sold your vehicle to a special finance dealer, you should be able to use it as a trade-in on something newer by using any equity as a down payment.
If you made your vehicle sale privately, and don’t know where to turn, let Auto Credit Express be your guide. We specialize in working with dealers across the country that have the lenders available to help if you have bad credit or no credit. It’s easy to get the process started, just fill out our online auto loan request form now!