Can You Sell Your Car With Negative Equity on the Lien?
When you take out a car loan, you don’t officially own the vehicle until you pay off the loan in full and the car has no lien on it. So can you sell a car that isn’t only not paid off, but has negative equity?
Many people are surprised to learn that yes, you can sell a car even if it has negative equity on the loan.
Negative equity is when the amount you owe on the vehicle exceeds what the vehicle itself is worth.
Is it a Good Idea to Sell a Car That’s Underwater?
While this may not be the ideal situation, it is often necessary in order to get out from under a high monthly payment or to simply get rid of an unreliable vehicle.
It all really comes down to your personal preferences, goals, and timeline.
If you need to get out of your current car loan situation fast and into a new one, it may be worth selling the vehicle at a loss or even trading in with negative equity to expedite the process.
However, if you’re not in a hurry and your payments are comfortable financially, there may be better options than rushing to sell a vehicle that’s upside down.
Best Ways to Sell an Upside Down Car: Know Your Options
The process is actually quite simple, and there are a few different options available.
Private Party Sale
One option is to sell the car outright to a private buyer. This can be done through classified ads, online listings, or word-of-mouth.
There are many advantages to selling a car private party. It often gives you more control over the sale and a higher sale price. The downside is that it usually takes significantly more time and effort.
Often still considered a private party sale, there are many avenues to sell your car online.
You can use DIY listings on sites like Craigslist, Facebook Marketplace, or simply post about them on your personal feeds.
There are also dedicated car sale services such as Carvana, which can make selling your car seamless and leave you in full control.
Sell to a Dealership
Another option is to sell the car to a dealership. Dealerships may not be quite as open to buying your vehicle if you’re simply selling it, rather than using it as a trade in. However, many dealerships still will.
In cases where the vehicle has positive equity, the dealership will agree to pay off the remaining balance on the loan, you will sign over the title, and then the dealership gives you a check for the difference.
This changes when you have negative equity, however. You’d be expected to pay off the remaining balance as a lump sum to the dealership at the time of sale
When you have negative equity, selling your car to a dealership without using it as a trade in is likely not your best option.
Alternatives to Selling Your Underwater Car
Selling a car with negative equity may be the right option for some situations, but it’s often not the best course of action.
Consider these options before committing to selling your car.
Negative Equity Trade In
If you plan on financing another vehicle when you get rid of your current one, an option to consider is using your car as a trade in. While often this, too, can be costly, it allows you to roll over your negative equity to the new loan.
This is helpful for situations where you would like to get out of your car loan quickly and into something new without paying a significant amount of cash right away.
This may be a challenging option for car buyers with bad credit.
If you’re not in a hurry to get rid of your car and are financially able to keep up with the payments, the best option may be to wait on selling.
Resolving some of the negative equity you have in your vehicle will make it an easier sale, allow you to put some value towards a new vehicle, and will avoid starting a new loan off on the wrong foot.
Refinance with Negative Equity
If you’re in a better financial situation than when you purchased the vehicle you have, or if you’ve seen improvements to your credit score, you may want to consider looking into refinancing with negative equity.
If conditions are right, you may be able to restructure your loan to a different term, get into more affordable payments, or secure a better interest rate. This could allow you to work towards reducing that negative equity on your current car rather than selling.