You yield positive equity if your car's value is more than the payoff amount. For example, if the car's value is $14,000 and the payoff amount is $10,000, you have $4,000 in positive equity.
Negative equity occurs when the car's value is less than the payoff amount. For instance, if the car's value is $12,000 and the payoff amount is $15,000, you need $3,000 to pay the loan off.
Inquire About Your Payoff Amount
You can contact your lender, bank, or credit union directly to learn how to sell a vehicle with a loan and request they provide you with your loan payoff amount. Some lending institutions specify the payoff amount for each account holder on their websites. The payoff amount consists of the loan balance, interest, and other fees. In most cases, the payoff amount will be viable for several days.
Discuss Your Options With Your Lender, Bank, or Credit Union
Depending on the nature of your equity, you will have several options concerning how you approach your private sale and pay off your loan. Discuss the following scenarios with your lender, bank, credit union, or other lending institution.
If you have positive equity, complete your private party sale and use the funds to pay off your loan. Then, you can:
• Save the extra amount, or use it to make purchases that are not car related.
• Apply the extra amount to a new car loan to avoid starting from scratch to obtain another vehicle.
If you have negative equity, you can:
• Pay the negative balance on your own, using cash from your savings or emergency fund.
• Delay your private sale activities, and make payments on your car until you have achieved positive equity.
• Sell your car to a buyer willing to pay more than the car's resale value and use the extra funds to pay the negative equity difference.
Ensure the Vehicle Title is Transferred Successfully
Here is what you can expect to occur during the title transfer process if you have positive equity or if you pay off the negative balance on your loan:
You sell the car, and the buyer gives you enough funds to cover the loan payoff amount.
The lender sends a release of lien letter to you since you have paid the loan in full.
You take the letter to your department of motor vehicles so that you can receive a lien-free title, making you the official owner of the car.
You release ownership of the vehicle by signing the title.
You give the signed title to your buyer.
Your buyer takes the signed title to the department of motor vehicles.
Their department of motor vehicles will present them with a new registration and title.
What Else Can You Do If You Have Negative Equity?
If you have negative equity and do not have enough money yourself or from a buyer to pay off your lender, you can also consider refinancing or using a personal loan.
You could refinance by reducing your interest rates. Doing so can cause your negative equity to decrease substantially over time until you can pay it off yourself or enter into the positive equity bracket. Another way you can refinance is by extending the length of your loan repayment period. Extending the loan term can be beneficial because it can lessen the amount you have to pay each month. If your monthly payments are a few hundred dollars less than they were before, it can give you time to save up and pay off the negative balance.
Consider Taking Out a Personal Loan
When you have good to excellent credit, you can take out a personal loan to pay off the amount on your negative equity. You can use a large personal loan to pay the difference in full. You can also use a small loan to pay it off partially. Consider getting as small of a loan as possible to dodge incurring significant debt. A small loan plus money from your savings fund could potentially pay off the total of your negative equity.
This article was provided by Caramel. Caramel's mission is to change the way people buy and sell cars from one another – making the entire experience safe, simple & sweet. The first car checkout platform designed for private party buyers and sellers, you can find or list your car anywhere & use Caramel to handle everything else. That includes DMV work, secure payment, identity verification, vehicle reports, financing, delivery, insurance, vehicle protection & more.