Do you want to sell a car you owe money? The answer to these two questions will help you decide if your car is for sale.
If you answered “No” in question 1, your loan balance is lower than the car’s value, which means you have equity. Once you find a buyer, this makes the process very simple.
Your buyer’s bank or credit union will process the transaction if the buyer pays cash. The buyer’s bank will accept cash from the buyer and you will sign paperwork. After that, the bank will pay your car off, give you equity and give the title to the buyer.
If the buyer is financing the purchase with their bank or credit union, they will also do the same.
Selling a car worth more than its outstanding balance is easy if you don’t have a clear title. Simply meet your buyer at the bank or credit union, and they will take care of everything else. *
If the answer to #2 is “Yes”, please take a moment and learn about “pass-thru” transactions below. This is a great way for you to lower your sales tax obligation.
*NOTE: This service is not offered by every bank or credit union. Your buyer should contact us to confirm.
What to do if you owe more than your car’s value
If you answered “Yes”, to question 1, your loan balance exceeds the car’s value, which is considered negative equity. This is often referred to as “upside-down.”
You will need cash or the assistance of an auto dealer if you are in financial trouble with the car you want to sell.
You will need to have enough cash to cover the difference between what you owe and what your buyer agrees to pay. You will need to:
Meet your buyer at the bank. Your loan amount will be determined by the bank and you will then be asked for payment. In most cases, the buyer’s bank will request a check from your bank.
To get the exact amount, go to your bank.
Notify your buyer’s bank before you get the check or bank draft to cover your payment. The buyer’s bank will get a payment figure for 5-10 days from the future. This means that the amount they request may be slightly more than what you receive when you call your bank and ask for a payoff.
Do You Plan to Purchase Another Car from Your Local Dealership after You Sell?
If you answer “Yes” to #2, you may be able to negotiate what is called a “pass through” transaction with your local dealer.
This is how a pass through works:
Once you have reached an agreement on a price, the next step is to make a purchase with the dealership.
You agree to let the dealer take your vehicle in for trade as a condition of your purchase. Then, the dealer will immediately sell your vehicle to you at the agreed-upon price.
The buyer will buy your car directly from the dealership after you have traded it in. This is why the name “pass through” means that the keys to your trade are basically passed from the dealer to the buyer.
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There are many benefits to a pass-thru:
You don’t have to pay sales taxes if you trade in a car. Pass through will lower your taxes.
Your dealership may add more equity to your car if you owe less than it’s worth. You might not have to pay any cash if your car is upside down.
- Your dealer can arrange financing for you, which may be beneficial to your buyer.
- The dealership may be able offer an extended warranty depending on the age of your car.
- Pass-thru deals have one disadvantage:
- You have to simultaneously sell and purchase a car. There are many moving parts.
As a condition to the pass-thru, the dealership will ask you to pay a dealer processing fee. This fee can be hundreds of dollars at some dealerships.