How to Secure Payment When Selling a Car

Selling a used car can be a headache, but the challenge only grows when a buyer needs to finance the purchase rather than paying cash outright. In the event you decide to take the risk of allowing your car's buyer to make payments, you will need to take steps to make your transaction as transparent and secure as possible. Taking the right actions to protect yourself at the outset will reduce your risk in the event of later nonpayment by the buyer.

Instructions

1

Execute a written sale agreement with the buyer. In this agreement, detail exactly what you are selling to the buyer for what price. Include the Vehicle Identification Number (VIN) in the sale agreement to identify the vehicle being sold. State what additional accessories and equipment, if any, you are transferring to the buyer along with the car. Specify that the purchase is "as is," with no warranties.

2

Execute a promissory note with the buyer. The note provides evidence of the buyer's obligation to repay you the financed amount, specifying the interest rate and maturity date of the loan. Many sources offer form promissory notes that you can use when selling your car, but read the entire document to make sure it actually applies to your situation.

3

Execute a security agreement, or "financing statement," with the buyer. This document constitutes the buyer's pledging of the car as collateral for your loan. Require the buyer to maintain collision insurance on the vehicle for the life of the loan. Be sure to include a right of repossession in the event of nonpayment; without this, you have no right to repossess the car. Under the Uniform Commercial Code, your security interest is not perfected until you file it with the appropriate authority in your state. This will generally be the office of the Secretary of State or a similar official.

4

Take the appropriate steps to place a lien on the vehicle title in your state. Generally, this involves submitting the bill of sale and an application form to the Division of Motor Vehicles. The new title in the new owner's name will show you as having a lien on the vehicle.

5

Retain possession of the new title in a safe place along with all other evidence of your transaction. When the buyer has paid off the loan, release the lien on the title in the space indicated and forward it to the buyer. In the event the buyer defaults on the loan agreement, consult an attorney licensed to practice in your state before repossessing the car to ensure that you comply with all state-specific legal requirements.