How To Sell My Car With Negative Equity

Are you looking to sell your car with an outstanding loan? This might sound tricky, but it can be done. Outstanding loans that result in negative equity can prevent the possibility of trading in your car for a new one at the dealership. Great, you say, how will I ever be able to sell my car? Don't worry, you still have options:

  • You can sell the car to a private party for the balance of the loan
  • You can pay extra to reduce the loan balance
  • You can finance the negative equity with a zero-percent credit card loan
  • You can find a dealership with a loan payoff incentive or rebate program
  • You can keep the car and pay down the loan over time

Obviously, you don’t want to keep the car any longer than necessary. Upon finding out that your car’s value is “underwater” or “upside-down” you’ll want to replace it with a car that more accurately represents the value you paid for it. Since you owe more than what the car is worth, though, you’ll need to find a way to close that gap before you can get a new car.

Having negative equity on a car means you owe more on it than it is worth.

Selling the Car to a Third Party

Although the trade-in option is essentially out, you may be able to find a private buyer who is interested in purchasing your car. Check your local Craigslist or list the car on eBay for the best chance at getting it sold. The problem here is that if you don’t find someone willing to pay more for your car than what it is worth —an unlikely scenario— you’re still liable for the difference in equity.

At this point, your options include paying out-of-pocket to reduce the balance or financing the equity. If you don’t have a couple thousand dollars or more in savings that you can spend, you might be able to finance the negative equity with a zero-percent credit card loan. It can be risky, and you’ll want to be absolutely certain you’re able to pay off that credit card quickly, but if you can get a rate lower than that of your car loan, it can be a helpful ally. The important thing here is keeping the new loan term as short as possible.

Selling the Car to a Dealer

If you find a dealer who is willing to assume liability of the loan and either sell you a new car or make a trade for the financed car, you need to be very careful about how they plan on proceeding. Ask how the dealer plans on treating the negative equity and get a clear, concise answer you understand—then have them point where those terms are stipulated in the contract you sign. Remember that a dealer can say one thing and have you sign another.

Whatever you do, do not purchase another car and roll the negative equity into a new loan for that car. At first, this idea may seem to work out somehow, since you get a new car, get rid of the old car and, after all, you’ll still have to make monthly payments anyways—but look at the numbers. If you incorporate the negative equity into a new car loan, you’re essentially burying yourself deeper in debt, increasing negative equity with money financed through additional lending, making the problem worse.

Dealerships that offer loan payoff incentives may actually be doing this without telling you, so be sure to ask for a clear and complete explanation of the loan payoff process before agreeing to anything. If the dealer is aggressively trying to get you to agree to a toxic loan, you’re encouraged to report them to the Federal Trade Commission or your state Attorney General.