Can You Sell a Car That You Are Financing? Pros, Cons & Tips

Introduction

When it comes to buying a car, many people don’t have the cash on hand to purchase one outright and instead opt to finance the purchase. But what if you want or need to sell the car you are financing? Can you do it? In this article, we will explore the pros and cons of selling a car you are financing, as well as the steps you need to take to safely and legally complete the sale.

Exploring the Pros and Cons of Selling a Car You are Financing

When considering whether or not to sell a car you are financing, it’s important to understand both the advantages and disadvantages of doing so. Here are some of the pros and cons of selling a car you are financing:

Advantages of Selling a Car You are Financing

One of the main advantages of selling a car you are financing is that it can allow you to get out from under a loan you no longer want or need. According to financial expert David Bakke, “If you’re in a situation where you don’t want or need a car payment anymore, selling the car is an option. It could be the fastest way to get rid of the loan and the car.” Additionally, if you’re able to sell the car for more than you owe, you can use the extra money to pay off other debts or save for the future.

Disadvantages of Selling a Car You are Financing

On the flip side, there are also some potential drawbacks to selling a car you are financing. For example, if you owe more on the car than it’s worth, you may end up having to pay the difference out-of-pocket. Additionally, if you’re still making payments on the car, you won’t be able to keep any profit until the loan is paid off. As Bakke notes, “In most cases, the lender will require you to pay off the loan before they will release the title.”

Is it Wise to Sell a Car You are Financing?

Whether or not it’s wise to sell a car you are financing will depend on your individual circumstances. Here are some reasons why it might not be wise, as well as some reasons why it could be wise:

Reasons Why it Might Not be Wise

If you owe more on the car than it’s worth, selling it may not make sense financially. According to financial advisor Leah Ingram, “If you owe more than the car is worth, selling it won’t make much sense unless you are willing to pay the difference out-of-pocket.” Additionally, if you still have a few years left on the loan and you’re paying a low interest rate, it may be better to keep the car until the loan is paid off.

Reasons Why it Could be Wise

On the other hand, if you’re paying a high interest rate or you’re having trouble making the payments, it may be wise to sell the car and use the proceeds to pay off the loan. Furthermore, if you’re able to sell the car for more than you owe, you can use the extra money to pay off other debts or invest in your future.

Tips for Selling a Car You are Financing

If you decide to sell a car you are financing, there are a few tips you should keep in mind. Here are some of the key points to consider:

Find Out What Your Loan Balance Is

Before you put the car up for sale, you should find out what your loan balance is. This will help you determine how much you’ll need to collect from the buyer in order to pay off the loan. You can contact your lender to find out the exact amount.

Be Aware of Any Prepayment Penalties

You should also be aware of any prepayment penalties associated with the loan. Some lenders charge these fees if you pay off the loan ahead of schedule. Make sure you know what the penalty is so you can factor it into the sale price.

Have a Plan for Paying Off the Loan

Finally, you should have a plan for paying off the loan. You’ll likely need to provide the buyer with proof of payment before the title can be transferred. This can be done through a cashier’s check or electronic funds transfer.

How to Safely Sell a Car You are Financing

Once you’ve found a buyer and agreed on a price, there are certain steps you need to take to safely and legally transfer ownership of the car. Here are some of the key points to keep in mind:

Understand the Legal Obligations

It’s important to understand your legal obligations when it comes to selling a car you are financing. Make sure you know what documents need to be signed and what information needs to be provided. This will help ensure the process goes smoothly and that you remain in compliance with the law.

Take the Proper Steps to Transfer Ownership

Once the loan is paid off, you’ll need to take the proper steps to transfer ownership of the car. This typically involves signing over the title and providing the buyer with a bill of sale. You should also make sure to obtain a receipt from the buyer to prove the transaction has taken place.

Make Sure to Keep Records

Finally, make sure to keep records of the sale. This includes copies of any documents you signed, as well as any correspondence between you and the buyer. This will help protect you in case there are any issues down the road.

What You Need to Know Before Selling a Car You are Financing

In addition to understanding the legal aspects of selling a car you are financing, there are also some other things you should be aware of. Here are some of the key points to consider:

Understand the State Laws

Before you put the car up for sale, make sure you understand the laws in your state. Every state has different regulations when it comes to transferring the title of a vehicle. Make sure you know what documents are required and what fees may be due.

Consider the Tax Implications

You should also consider the tax implications of selling a car you are financing. Depending on the profit you make from the sale, you may owe taxes on the income. Be sure to consult a professional tax advisor to find out what you need to know.

Check With Your Lender

Finally, it’s a good idea to check with your lender before you put the car up for sale. They may have specific instructions for how the loan should be paid off and what documents need to be provided. Make sure you understand these requirements before you begin the process.

Questions to Ask Yourself Before Selling a Car You are Financing

Before you decide to sell a car you are financing, there are a few questions you should ask yourself. Here are some of the key points to consider:

Am I Able to Pay off the Loan?

First and foremost, you need to make sure you’re able to pay off the loan. If you’re unable to pay it off in full, you may need to look into other options such as refinancing or trading in the car.

Do I Understand My Legal Obligations?

It’s also important to make sure you understand your legal obligations. Make sure you know what documents need to be signed and what information needs to be provided. This will help ensure the process goes smoothly and that you remain in compliance with the law.

Is this the Best Financial Decision for Me?

Finally, you should ask yourself if selling the car is the best financial decision for you. Consider the cost of the loan, the taxes you may owe, and the potential profit you could make from the sale. This will help you determine if it’s the right move for you.

Conclusion

Selling a car you are financing can be a difficult decision to make. There are a number of factors to consider, including the loan balance, any prepayment penalties, and the legal and tax implications. Ultimately, you should weigh the pros and cons carefully and make sure you understand your legal obligations before proceeding with the sale. By following these tips, you can safely and legally complete the sale of your car.