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Do you need to pay off your car prior to selling it? Advertiser Disclosure Advertiser Disclosure We are an independent, advertising-supported comparison service. Our goal is to help you make better financial decisions by offering interactive financial calculators and tools, publishing original and objective content, by enabling you to conduct research and compare information at no cost and help you make informed financial decisions. Bankrate has partnerships with issuers, including but not limited to American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Earn Money The deals that are displayed on this site are from companies that compensate us. This compensation can affect the way and where products are displayed on this website, for example for instance, the sequence in which they be listed within the categories of listing in the event that they are not permitted by law. Our mortgage, home equity, and other home lending products. This compensation, however, does not influence the content we publish or the reviews that appear on this website. We do not include the vast array of companies or financial offers that may be available to you.
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3 min read . Published April 18, 2022
Writer: Kellye Guinan Written by Personal and Business Finance Contributor
Kellye Guinan is a freelance editor and writer with over five years ' experience within personal finances. She's also a full-time employee at her local library, where she assists people in her community get information about financial literacy, in addition to other topics.
Editor: Rhys Subitch Edited by Auto loans editor
Rhys has been editing and writing for Bankrate from late 2021. They are dedicated to helping readers gain the confidence to take control of their finances with concise, well-studied data that reduces complex subjects into digestible pieces.
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If you are still owing money on your vehicle There are a few actions you need to take prior to selling it. Be careful, however because negative equity can have a significant impact on your finances. It's an option but it can mean paying more than you're actually required to. How do you make payments on your vehicle prior to trading it in In almost all instances, it's better to pay down or clear your loan prior to selling it or trading it into. The primary concern will be whether or not you've got negative or positive equity on your loan. With negative equity you'll need to pay off your auto loan before you trade with your car. Positive equity Positive equity on an auto loan is when you owe less on your car than it is worth. For example, if you've got $10,000 remaining on your loan but your car has a value of $15,000 you have $5,000 in positive equity. If you choose to trade in your vehicle, the positive equity can go toward your next vehicle for an down payment, which will reduce the amount you need to borrow. Negative equity Negative equity can be described as the other. If you still have to pay $10,000 for your loan but your car is only worth $8,000, you'll have $2,000 of negative equity. This is what lenders and columnists from financial advice refer to as " ." It's an unwise situation to find yourself in. If you decide to trade in your vehicle, you'll be required to pay for the remaining out of your pocket. In addition, breaking even is essential because it keeps you from rolling negative equity into a new loan and the cost of a car you are not driving. How to trade or sell an automobile that you owe money on People trade in and sell cars that have liens on them frequently. In fact, dealerships may claim to pay off your car after upgrading to brand new model. But is more complex than changing one car for another. Check out the value of your vehicle on sites like Edmunds as well as Kelley Blue Book. Look at vehicles with the same model and look at average selling prices in the surrounding areas. Determine your budget for your new car and the amount you have to pay on your current car. If you owe more than you're likely to get through selling it, think about alternative options. Gather maintenance records and other paperwork. This can help boost the value of your vehicle as a trade-in since it can prove that it's taken care of. Find offers on trade-ins from dealers so you don't have to visit one location. Many people use the phrase "trade-in," but really it's selling your car. You are able to shop for different quotes to get the most competitive price. Get everything in writing and especially if the dealer promises to pay off the loan. Be sure you have the contract. It's still your responsibility to pay off your loan and follow-up and make sure you're lender is paid once you have traded in your car. Alternatives to trading in a car If you're upside down on your loan, trading it in is not the best course of action. Instead, you should consider selling your car to an individual buyer or paying for the loan up front or refinancing the loan at a lower interest rate. Utilizing a private buyer, rather than an auto dealer, could help you for more. However, you will need to manage the process of paying off your lender and transfer the title yourself. The dealership usually does on your behalf, therefore it can be an additional burden. Paying down the loan might not be an option for all. However, if your loan payment isn't breaking the bank, set aside some money to break even. So, trading your vehicle in won't require taking any of the remaining loan amount into the new auto loan. Finally, try to . Do not extend the loan term in an attempt to lower your payment -it increases the likelihood that you'll go upside down. Instead, cut down on the amount you'll need to pay. The next step is if you're not upside down on your loan and you aren't in a position to trade in your car for a less expensive option may be the best option. If you do have negative equity, consider refinancing your loan instead. It could enable you to lower your interest rate so you pay less in total. But, most importantly, don't transfer the remainder of your loan into a new loan. Talk to your lender or get rid of your car, or look for another option for avoiding taking on additional debt if you can ease it. Learn more
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Written by a Personal and Business finance Contributor
Kellye Guinan is a freelance editor and writer with more than 5 years experience working in the field of personal financial matters. She is also a full-time worker at her local library, where she assists the community gain access to information on financial literacy, as well as other subjects.
Edited by Rhys Subitch Edited by Auto loans editor
Rhys has been writing and editing for Bankrate from late 2021. They are passionate about helping readers gain the confidence to take control of their finances through providing clear, well-researched facts that break down otherwise complex topics into manageable bites.
Auto loans editor
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