Selling a Car: Loan to Car Value

You can sell your vehicle privately or to a dealership even if you still owe money on your auto loan. If you owe more than your car's value or your sales price doesn't satisfy the loan balance, you must pay your lender to release the vehicle's lien. Otherwise, you can keep the profit you make from your sale.

Obtain Your Payoff

To determine if you'll need to come up with extra money to satisfy your vehicle loan, retrieve your car's payoff amount. Call your lender to find out the amount of your payoff and your loan's per-diem amount. A per-diem is the amount of interest you pay toward your loan daily. If you make a payment during the time you are trying to sell your car, call your lender again to obtain the loan's payoff amount, as some of your car payment goes toward interest charges.

Determine Vehicle Value

Despite your loan payoff amount and a likely desire to make a profit, you can simplify the car sale process if you ask for the correct private sale value. Several appraisal guides are available online, all of which offer different prices for vehicle values. Use Edmunds.com and the Kelley Blue Book website to access private sale values for your car. Choose the correct condition for your vehicle during the appraisal process, as condition can change your car's value by thousands of dollars. Use an average of both appraisal guides to determine a fair selling price.

Working With a Buyer

You don't have to advertise that your vehicle still has a loan balance when trying to sell your car. It is not unusual for a person to sell a vehicle while a loan still exists. Before you sell your car, find out your lender's payoff process, including the time that it takes to get your title or lien release so you can better work with a buyer to transfer ownership quickly. Once you have an interested buyer, arrange to bring him to your bank or credit union to satisfy your loan. If you owe more than the vehicle's value, have your money ready to pay off the loan at the same time.

Paying Off the Loan

If your lender is not local, arrange to send in any amount you still owe on the loan before your buyer pays. Then, arrange to have your buyer contract your lender to discuss your account information and make her payment. If the lender is local, go together to complete the payoff process. Once you have a lien release, give the original to the buyer, a requirement in most states to release the lien from the title. If your state sends the title to lien holders instead of registered owners, known as a title holding state, retrieve your properly signed title and go to a motor vehicle office with your buyer to transfer ownership.

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When Paying Off a Car Loan Can You Insist on Getting the Title?

Once you pay off your car loan, you become the vehicle's sole owner and should receive a title, as your lender no longer has financial interest in the vehicle. You shouldn't have to insist on getting the car's title; your lender should provide you either with the vehicle's title or a proper lien release that states the vehicle's loan is satisfied.

Contact Your Lender

Call your lender to discuss your account and ask when you'll receive your vehicle's title. Depending on your state, you might not receive a new title at all, but a lien release to supplement your title. This document proves you satisfied your loan, allowing you to sell your vehicle or apply for a new title to remove the lien holder. Once you contact your lender, you might find that your loan isn't satisfied because of outstanding late charges or other issues you need to fix before receiving the lien release or title.

Title Holding States

Some states do not send a vehicle's title to the registered owner but to the lender instead. In this event, you'll need to obtain the title from your lien holder. Ask your lender when you'll receive the vehicle's title. If your lien holder is local, you can likely go to your lender and retrieve the car's title and a lien release. If your find lender tells you that your state motor vehicle department should have already sent the title to you, you'll have contact your motor vehicle department to resolve the problem.

What to Do With a Lien Release

If your vehicle's title shows a lien holder, keep your lien release in a safe place with your title. If you sell your vehicle or transfer ownership in the future, the new owner needs the original lien release to transfer ownership and remove the lien. You can also use the lien release to apply for a new title in your own name by going to a motor vehicle office with your title and lien release to request lien-free title. States vary on title application charges, but you can save money by holding onto the title and lien release.

Consideration

If you paid off your loan by refinancing, you won't get the title in a title-holding state until you pay off the loan. If you don't, you will receive your title, although you might wait over a month. Your new lender must pay off your old lender first. Then, your old lender requires time to process paperwork, as does your new lender and state motor vehicle department. Once your lender has submitted the title paperwork to a motor vehicle office, you can call the state department directly for a status on your title.

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California Finance Lender Repossession Laws

Under California law, repossession agencies hired by car owners must have valid licenses to repossess issued by the California Bureau of Security and Investigative Services. However, California law does not require banks, financial institutions and other legal owners to obtain a license before they can reclaim their collateral. In-house employees or owners can conduct repossessions without licenses since they are not third-party agencies.

Rights

California law requires repossession agencies to follow different guidelines than owners of repossessed vehicles such as banks. Banks, financial institutions and other owners may comply with a less restrictive set of repossession laws. Finance lenders and repossession agencies can conduct repossessions while the borrowers are physically present, and it is against California law for borrowers to attempt to thwart their repossessions. Additionally, under California law, it is illegal for borrowers to attempt to hide their vehicles, and garage owners and storage facilities must notify the local police department of all new vehicle storages. California law allows vehicle owners to repossess their cars and exercise their ownership rights after one missed payment. The state will allow owners to exercise their contract rights if both parties --- buyer and seller --- entered into a binding contract.

Police Notification

Both repossession agencies and finance lenders have a legal duty to notify the local police department within one hour of repossession. The notification to buyers rule is different for repossession agencies. Although repossession agencies are legally obligated to notify borrowers within 48 hours of repossession, finance lenders are not. California law requires repossession agencies to send a "Notice of Seizure" within 48 hours after repossession.

Personal Effects and Sales

Finance lenders and repossession agencies have bailment duties, and they must store personal items left in vehicles for 60 days, but after that period, they may throw them away or sell them. Lenders do not have to keep an inventory list of the personal belongings, but repossession agencies must keep inventory lists of items found in the car and if these items were sold or thrown away.

Acceleration Rights

Under California law, repossession agencies must provide borrowers with redemption rights to repurchase their vehicles after paying the amount due and owing at the time of repossession. However, banks that repossess can accelerate the terms of their sales contracts if borrowers committed fraud by using false information on their credit applications or attempted or threatened to destroy their vehicles. Banks may also accelerate contracts if their cars were used in the commission of a criminal act or the buyer committed or threatened the bank with violence during repossession. Last, banks can demand full payment if the borrower damaged or threatened to damage the vehicle.

Considerations

Since state laws can frequently change, do not use this information as a substitute for legal advice. Seek advice through an attorney licensed to practice law in your state.

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Can I Get a Student Loan for a Car?

Student loans provide young people the financing they need to obtain a post-secondary degree. These loans may be issued by a private lender, like a bank or credit union, or directly by the federal government. Irrespective of the source of the money, student loans are intended to support learning and so in most cases proceeds cannot explicitly fund the purchase of a new vehicle.

Student Loan Proceeds

Student loan proceeds must be used only for qualified educational expenses. These expenses, defined by the financial aid office of the student's college or university, include tuition, room and board, fees, books, equipment, commuting expenses and computer purchases. The money may not be used to purchased fixed assets like houses, vehicles or boats.

Excess Awards

Some institutions allow students to obtain the maximum amount of federal financial aid even if the student has no educational need for the money. For example, a public university may charge $5,000 in tuition and $7,500 in room and board each year. A student may have the option of taking a loan for $12,500 despite not taking a full-time load of classes and living off-campus. The award money not taken by the school will be refunded to students as a lump-sum payout. Many students use their "refund" money for ordinary expenses or to pay down bills. Be aware, however, that the law and the loan agreement requires students to use loan money only for qualified educational expenses. Penalties can range from disqualification from future awards, to criminal prosecution for defrauding the federal government or mail fraud, with penalties as high as 20 years in prison and $250,000 in fines.

Auto Loans

Most auto loans are secured, so with a minimal up-front down payment of as little as $1,000, most people -- even with no or bad credit -- can qualify for a loan program. Subprime loans are typically more expensive than loans to people with solid credit.

"Student Auto Loans"

Some websites advertise a "student auto loan" with misleading language that implies that a student can get a car just as quickly and easily as a student loan. Beware the fine print, however--"student auto loans" are merely personal loans marketed to students and have no relationship at all to the ordinary student-loan process.

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Can I Co-sign for Multiple Cars?

You can co-sign for multiple car loans as long as your credit is in good standing. Your income must also be enough to afford the payments of the loans you sign for. However, co-signing for one loan presents risks, let alone signing for several. Before you co-sign for multiple loans, consider the risks involved.

Debt-to-Income Ratio

Your ability to co-sign for multiple loans depends on your debt-to-income ratio, which banks used to determine whether you can afford the car payment you apply for. The lender checks your credit to view any revolving credit and debts you currently have. Based on the information you provide in your credit report, the lender also uses your income and time with employer to gauge whether or not you can afford multiple car loans. If your income is sufficient and the amount of your debts and car loan are compatible, you can co-sign more than once.

Your Responsibility

Because you need good credit to be able to sign for a car loan, co-signing for people who do not have good enough credit to obtain their own loans posses substantial risk. It is your responsibility to pay for the loan if the person you sign for misses a payment or becomes past due. Also, late payments are reported on your credit report, not just the main borrower's. Constant late payments or a repossession can significantly damage your credit rating.

Dealer Tricks

Sometimes dealerships know you will not qualify for an approval on two loans at the same time, if you're buying the vehicles at the same time. In such an event, the dealer may send your credit application into two separate banks at once so that it appears you are purchasing one car, and not two. It takes a few days for your loan to go through, so neither bank will be aware of your intentions. Do not allow the dealer to do this. If you cannot afford the car payments of the vehicles you're co-signing for, you will not be able to stop a repossession.

Future Expectations

Adding new, multiple lines of credit to your credit report will affect your credit score, future loan approvals and interest rates. For example, two $15,000 car loans put you in $30,000 of debt, which is unattractive to lenders. You may not be able to trade in your own car for another because of this. Or, if the people you are co-signing for default on their loans, it can cause new account interest rates to soar if you apply for credit again. Carefully consider your future lending needs and whether you trust the people you are co-signing for.

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How to Manually Calculate Car Payments

Today is the day that you have finally purchased that new car that you always wanted. You headed to the dealership to nail down the terms of the contract, secure the financing and pick up your new baby. When you arrange for a car loan, you need to determine the amount that you can afford to make on monthly payments. The information that you need to determine the payments is the interest rate, the length of the loan and the total amount of the loan.

Instructions

1

Determine the interest rate per month by dividing the interest rate by 12 months. For example, a 6 percent loan / 12 = 0.005.

2

Add 1 to the interest rate per month. In the example, 1 + 0.005 = 1.005.

3

Raise one plus the interest rate per month to the power of the number of months of the loan. If the number is expressed in years, then multiply the number of years by 12. In the example, if the borrower has the loan for three years, then 1.005 ^ 36 = 1.196680525.

4

Subtract 1 from the number calculated in Step 3. In the example, 1.196680525 - 1 = 0.196680525.

5

Divide the interest rate per month by the number calculated in Step 4. In the example, 0.005 / 0.196680525 = 0.025421937.

6

Add the interest rate per month to the number calculated in Step 5. This is the interest factor. In the example, 0.005 + 0.025421937 = 0.030421937.

7

Multiply the interest factor by the total amount of money borrowed for the car loan. In the example, if the borrower borrowed $15,000, then $15,000 * 0.030421937 = $456.33.

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Is a Car Loan a Secured Debt?

Car loans are a type of secured debt. Lenders use the car as collateral when writing the loan, and if the borrower defaults, the lender assumes control of the vehicle. Some people use home equity lines to purchase vehicles in which case the collateral for the debt is the borrower's home rather than the car.

History

Before the the mass production of cars became commonplace, car dealerships paid cash for vehicles and sales were scarce. After World War I, production increased and General Motors established its own financial services arm; General Motors Acceptance Corp. In 1959, Ford founded the Ford Motor Credit Co. LLC, and later in the 20th century other manufacturers including Honda and Toyota began to offer vehicle financing. Many banks have dealer services divisions that provide wholesale lending services to automobile dealers, and banks also lend to individuals.

Time Frame

Most banks allow customers to borrow only against cars that are less than seven years old. Banks regard vehicles as depreciating collateral and do not want loan terms to extend past the useful life of a car. Car payments are due monthly and normally begin 30 days after the purchase of a vehicle. Short-term car loans of three years or less have lower interest rates than longer-term loans because the car has less time to lose value.

Misconceptions

Many people mistakenly believe that they can co-sign on a vehicle without assuming responsibility for the debt. Co-signers are liable for the debt if the principal borrower defaults on the loan. The payment history of the loan is reflected on the credit report of both the borrower and the co-signer. Banks allow individuals without an ownership interest to co-sign for cars, and many parents do so for teenage children.

Considerations

Credit unions and small banks tend to offer better rates for car loans than large banks. Small financial services companies have limited deposit bases and are more averse to taking on large risks such as commercial loans or jumbo mortgages. To generate profits they offer small loans such as car loans because two or three car loan defaults would have less impact on their financial stability than one large mortgage default. Small banks offer lower rates to lure clients from large competitors who focus on lucrative home lending.

Warning

People who buy cars with home equity lines often cite the tax deductions offered on home loan interest payments as a key factor in the decision. Home equity lines have variable interest rates, and when interest rates are low, they may result in lower payment amounts than car loans, but the rates rise every time the prime rate increases. Many people do not realize that HELOC payments are interest-only and rates can rise as high as 20 percent.

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