Selling a Car with an Outstanding Loan

In many instances a car may be sold with an outstanding car loan balance. This is particularly true of those vehicles that are “upside down.” An upside down situation occurs when a borrower owes more for the vehicle than what it is worth.

It is possible for the vehicle to be sold with an outstanding loan.  A few steps that can be taken to accomplish this type of transaction include having lien released, selling the vehicle and paying the loan out of the sales proceeds or transferring the loan balance to a third-party.

Step 1: Lien Release

A seller with an outstanding loan balance can look to have the lien and any associated debt obligation released.  This can be viewed as a loan modification where changes in interest rates and values have caused the value of the vehicle to depreciate faster than scheduled.
To accomplish a lien release, the buyer will need to contact the lender to work out a satisfactory agreement relative to the vehicle.  Once accomplished, a lien release will need to be requested that states that there is no further obligation associated with the car.

Step 2: Sell the Vehicle to Pay the Loan

Failing to obtain a lien release, the owner should attempt to sell the car outright in the open market.  The proceeds received from the sale should ideally be enough to pay off the outstanding loan balance.  If not, the seller will need to come up with the difference for the loan or continue to make payments until the loan balance has been paid off.  Failing to do so will result in a loan default that will become a negative to the credit rating of the car owner.

Step 3: Transfer the Loan

An owner with an outstanding loan balance may also take the step to transfer the loan to another party who will assume the remainder of the loan.  This will also mean that the transferee will also take ownership and possession of the car since it will be their name on the loan agreement.  This relieves the owner of the continuing burden of paying the car note, free them from the potential of a loan default and allow them to pursue financing on another vehicle.

These steps are some of the steps in the process that should help a person with an outstanding loan balance sell their car.  It should be understand that during the time it takes to complete the sale, ongoing payments and loan conditions should be met in order to avoid repossession of the vehicle that will result in negative action against the owner.

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