It is not illegal to sell your car if you still owe money on your car loan, but you'll have to abide by your state and lender's requirements to transfer ownership. Some states don't allow vehicle title transfers when a lien exists, so you'll have to provide a lien release from your lender. Expect to pay off your loan to sell your car.
Your State's Rules
States vary on title processes when a lien exists. Some states send the title to the lien holder; once the loan is satisfied the lender will release the title. If this is the case in your state, you won't be able to sell your vehicle without the title. Other states may send you the title, but decline transfer without a valid lien release. In states that allow title transfers while liens exist, buyers usually steer clear of a vehicle purchase if it has a lien. Your lender can repossess the vehicle from your buyer; this fact is well known.
Lender Requirements
If your lender has the vehicle's title, you must satisfy the loan before you can officially sell your car. Call your lender to discuss its payoff process and to obtain your payoff amount. Some states allow the lien holder to sign the front of the title to prove the lien has been satisfied. If no spot exists for this on the title, you can obtain the lien release document to give to your buyer after you pay off the loan. Be clear on your lender's requirements before you sell your car to avoid issues after you've found a buyer.
Using the Sale to Satisfy the Loan
Selling your vehicle while it has a lien is not unusual, but you should plan ahead to sell your vehicle. Call your lender before you advertise your vehicle for sale to find out how long the title transfer or lien release process should take. If you can't sell the car for the entire loan amount, expect to come up with the rest of the money needed to satisfy the loan. If your lender is local, bring your buyer to the bank to pay off the loan. If not, allow your buyer to call your lender to pay off the loan directly.
Lien Release Issues
If you had originally bought a vehicle that had a lien listed on the title or the loan is in someone else's name, you can remove the lien from the title before your sale. Look up the lender's information to call in and request a lien release. Acquiring the lien release may prove a hassle; most banks can send the release only to the original borrower. Expect to provide the bank with a copy of the car's title and registration to prove ownership. Once you have the proper lien release, retitle the vehicle. This way, you can simply sign over the title when you sell the car.
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