How to sell your car when the lender holds the title

We’ll tell you what you need to do to sell the car when you still owe money on it and provide tips for completing the sale.

Can you sell a car with a loan?

Yes. You can still sell the vehicle if you owe money on a car loan. However, you need to go through your lender. You find out how much you owe and how to pay off the remaining balance to satisfy the loan and transfer the title to a new owner. Read on to see your steps.

Research your car’s value

If you’re selling your car with a loan, you’ll want to check the value of your vehicle. Use the valuation tool from our sister site Kelley Blue Book to obtain the estimated range for trading it at a dealership or selling it to a private party. You can also ask for an Instant Cash Offer from a dealership. It’s a no-obligation offer. With the offer or several in hand, it’s easier to know where you stand.

Determine the loan payoff

You’ll also want to find out from your lender how much you owe on your vehicle and ask about any early termination fees for the loan. Once you know the loan payoff amount, you will want to inquire about what other steps you must take to own the car fully. See more on that in the car value section below.

At this point in the call with the lender, you’ll need information for the selling scenarios below because each will be different.

Trading in the car to a dealership

• Ask the lender what it would take to trade in the car to a dealership. You can also check with the dealership to see what they need if you’re that far along.

• Find out what paperwork for the car you will need and how and where it needs to be signed. You can also ask the car dealership.

Selling the car to a private owner

• Request all the details from your lender for completing a sale to a private party.

• Find out what paperwork the lender will need to complete the deal. The paperwork could be as simple as bringing the buyer to the bank. Also, the lender will send the title to the buyer.

Also see: One missed payment can lead to repossession of your car. Here’s a guide on what to do if you’re facing repo—or if it happens.

Know your equity

Once you determine how much you owe, here’s what you need to know about equity in the vehicle.

Positive equity

If your vehicle is worth more than you owe for the payoff, you walk away with positive equity. For example, if you owe $3,000 and your vehicle’s value is $25,000, your positive equity in the car is $22,000.

Check out: The cars, trucks and SUVs with the best resale value

Selling the car with positive equity

• It’s easier to sell your car when you obtain more money from the vehicle than what you owe to the lender.

• You can use the proceeds to pay off the loan, obtain the title, and potentially use anything left as money down on a new vehicle. If working with a private buyer, you’ll almost always receive more money for your sale. When the deal is done, you will need to sign the title over to the buyer only after you work out the financials and get money in hand. Use our tips for exchanging funds. However, as a car trade-in at a dealership, the finance office will handle the loan, payoff, and all paperwork, including the title.

Negative equity

If you owe more than your vehicle is worth, that’s negative equity. You’re upside down or underwater in the loan. For example, if your car’s value is $25,000, but you owe $30,000, your negative equity in the vehicle is $5,000, and you still need to come up with this amount to settle the loan.

Related: Experts worry a perfect ‘negative equity’ storm is brewing for many car owners; here’s what you can do if you’re caught in it

Selling the car with negative equity

• It can be more time-consuming to sell your vehicle when you owe more than it’s worth. The best option is to wait until you reach positive equity. However, there are circumstances when you can’t wait. In that case, you’ll need the payoff amount and then follow the steps below.

• Determine how you will pay off the car to cover the difference between what you owe and its value. Will you need a loan? Can you pay it off with cash on hand? Can you qualify for a 0% credit card offer? Or do you prefer to roll it into a loan for a new car?

• Check with your current lender for options. Also, we advise checking the interest rates with several other lenders. Just remember, several options may exist for good credit borrowers, from credit card offers of 0% financing, unsecured personal loans, and home equity lines of credit to pay off the remaining balance of the car after you sell. That way, you can decide the best financial scenario for you so you can get the title in hand. These days with higher interest rates, it’s even more important to shop around for the best deal.

• If you sell to a dealership, make sure you understand all line items on the vehicle trade and loan terms and fees on a car you may be purchasing. This option isn’t preferred unless you can come up with the payoff balance for the remaining balance of your negative equity vehicle. Dealerships will be all too happy to accept your trade and roll the negative equity into a new loan. But you will find yourself upside down even more in the vehicle you purchase. As a result, we do not recommend this option.

Related: More drivers under 30 are falling behind on car payments, Fed says

Tips to sell a car with a loan

Use these tips to help ease your mind during the sales process when selling a vehicle when you still owe money on a loan.

1. Use the buyer’s money

Here’s the tricky part: Once you’ve determined the payoff amount and sold the car, you’ll have to use the buyer’s money to pay off the note. Of course, you can use your own money, as well. However, paying off the car won’t be possible for many sellers without the buyer’s money.

The result is that some buyers won’t be comfortable with this type of transaction. To ease a potential buyer’s worry, use our marketplace, where you can be assured of a secure transaction and safeguarded against fraud. If the buyer remains uneasy, you may need to use your own cash to pay off the loan — or worse yet, look for a different buyer.

The good news is that many banks will accept payment directly from the buyer. If in a positive equity situation, ask the buyer for two payments: one to your bank for the payoff amount and one to you for the remainder of your deal amount.

See: A guide to selling a car to a friend or family member

2. Transfer the car title

Once the buyer pays for the car and you pay off the loan, the car title becomes free and clear.

Most lenders provide two options: You can take the title or let the bank know where to send the title. If the buyer takes a loan on the car, your lender will need to send the title to the buyer’s bank. Otherwise, the title can go directly to the buyer.

3. Ease any buyer concerns

Those looking to sell a car while the bank holds the title will have to do a little more legwork, but it’s not impossible. Just be sure to go out of your way to ease the buyer’s concerns.

After all, the buyer is spending a large amount of money and is acting on your word that you’ll send along the title.

Also on MarketWatch: 6 bad smells used-car shoppers should watch out for

What if your lender wants the payoff before selling the car?

If your lender prefers you pay off the loan before selling the vehicle, this gets tricky. However, selling the vehicle to a private owner using our Marketplace service will help the buyer feel more secure during the process. The buyer sends a secure payment, and it reaches the lender. When the payment clears, the service transfers the title.

This story originally ran on Autotrader.com.