Privately selling a car you're still making loan payments on without your lender's involvement is difficult to impossible. This is because you don't technically own your vehicle until you make that last loan payment and can treat the vehicle as your sole property. Involving your lender in the sale can help limit your liability on your existing loan and make transferring the car's title to the new owner much easier.
Lender Approval Requirements
Selling a vehicle with an existing loan requires the lender holding the title to approve the new buyer to assume the outstanding amount on the loan. You can't simply elect to transfer the vehicle's loan on your own because the lender has the legal right to a creditworthy debtor to make payments on the auto loan. The potential buyer must submit credit information -- including Social Security number, current employment status and proof of income -- to the lender. If the lender approves of the new debtor, the lender will transfer the remaining balance of the loan.
Lender Cash Sale
If the prospective buyer has sufficient cash to cover the remaining loan balance, you may choose to involve your lender in finalizing the business transaction. According to Cars.com, the transaction may take place at the lender's place of business with the new owner paying the lender the full amount outstanding on the auto loan. Once the payment finalizes, the lender will release the title to the new owner provided the new owner can show proof of proper auto insurance, valid driver's license and vehicle registration.
Vehicle Trade-In
Trading in a vehicle you still owe money on isn't a completely private sale since you're involving an auto dealership in the transaction. The dealership pays off the amount you owe on your existing loan and adds that amount to any new loan you take out to purchase your new vehicle. If the appraisal amount on your trade-in vehicle exceeds your previous remaining loan balance, the dealership applies this remaining balance to your new loan. This helps lower the cost of rolling your old auto loan into the loan for your new car.
Selling Without Permission
Selling your vehicle with an existing lien without your lender's permission is technically illegal since you don't hold the title to the car and therefore do not own it. Additionally, a prospective buyer will probably be hesitant to simply give you cash for your car in the hope that once you use the money to pay off the loan, you'll transfer the title in good faith. Always consult your lender to obtain permission to sell the vehicle. This way you can make sure to involve your lender in the selling process and ensure you receive enough money to pay off your auto loan without being responsible for an outstanding balance.
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