Selling a car with a title loan can be tricky. It’s important to understand the financial and legal implications before getting yourself into a sticky situation. Knowing what to expect can help you avoid complications and ensure a smooth transaction.

In a Nutshell

Selling a car with a title loan requires paying off the loan first, as the lender holds a lien on the car. You can explore options like negotiating with the lender, selling to a dealer, or refinancing. Once the loan is settled, you can transfer the title to the new owner.

Can I Sell a Car with a Title Loan? 

Technically no, a lien is a legal claim on your car by the title loan lender. It means the lender has an interest in your car until the loan is paid off. This lien directly affects your ability to sell the car.

Since the lender holds the title, you can’t transfer ownership until the loan is repaid. Selling the car without paying off the loan can lead to legal trouble.

Alternative Solutions

If paying off your outstanding title loan in full is not an option here are a few alternative options that might work for you:

Talk to your lender: You may be able to make an agreement to sell the car to a new owner and promise to settle the title loan after receiving the funds.

Sell the car to a dealer: Many dealers have experience with buying cars with title loans. They can directly pay off the car title loan and if there is positive equity pay you as well.

Refinancing the Title Loan: If you can’t pay off the loan, consider refinancing. This could lower your payments or extend the loan term, making it easier to sell the car.

Trade-In Options: Some dealerships will pay off your loan as part of a trade-in deal. This can simplify the process but may reduce your overall return.

Payoff Requirements

To sell your car, you should first pay off the title loan. Contact your lender to get the exact payoff amount, some car title loan lenders have prepayment penalty fees. The payoff amount will include the remaining loan balance and any fees. To transfer title loans, you generally need to work directly with the lender to ensure that the lien is properly released before completing the sale.

Paying off your car title loan before selling will be the quickest and easiest method. The lender will give back your car title and you will be ready to transfer the title to the new owner.

Legal Considerations

Laws governing title loans vary by state. Some states have specific regulations on selling a car with a title loan. It’s essential to check your local laws to avoid any legal issues.

Selling a car with an unpaid title loan can lead to lawsuits or penalties. Make sure the loan is paid off, or you have an agreement with your car title loan lender to prevent these complications.

How to Sell a Car That Has a Title Loan

Steps to Take When Selling a Car with a Title Loan

Start by contacting your title lender. Discuss your intent to sell the car and ask about your options for paying off the loan.

Once you know the payoff amount, arrange to pay it off. You may need to use the sale proceeds to do this. Be aware that this could reduce the amount you get from the sale.

After paying off the loan, the title lender will release the lien. You’ll receive the title, allowing you to transfer ownership to the buyer. Don’t forget to update the DMV and any other relevant authorities.

Handling Outstanding Loan Balances

If the sale price doesn’t cover the total loan balance, you’ll need to pay the difference or negative equity. Failure to do so could result in legal action from the title loan lender.

Leaving a balance unpaid can damage your credit and lead to repossession. It’s essential to address any remaining debt promptly.

How to Transfer a Title When Selling a Car

While each state has its own title transfer requirements, check with your local DMV to better understand your state’s guidelines. In most states you will need to:

1. Gather Required Documents

  • Title and Lien Release: You’ll need the original title and lien release.
  • Bill of Sale: Outline the sale details for the new owner and DMV.

2. Sign Over the Title

  • Complete the Transfer: Sign the title and provide buyer information. Ensure the new owner signs it as well.

3. Submit to the DMV

  • Buyer Files with the DMV: The new owner registers the car in their name.
  • Notify the DMV: Inform your local DMV of the sale.

4. Sign a Release of Liability

  • Submit a Release of Liability Form: This form, filed with the DMV, ensures you’re no longer responsible for the car after the sale. 

Tips for a Smooth Title Transfer

A few extra steps will prepare you for selling your car swiftly with ease. Here are some considerations:

  • Preparing Your Car for Sale: Ensure your car is in good condition before selling. Clean it thoroughly and fix any minor issues to attract buyers.
  • Choosing the Right Buyer: Decide whether to sell to a private party or a dealership. Private sales may fetch a higher price, but dealers can offer a quicker transaction.
  • Negotiating the Sale Terms: Be clear about your loan situation when negotiating. Transparency helps avoid misunderstandings and builds trust with the buyer.
  • Working with Professionals: Consider hiring a real estate agent or financial advisor if you’re unsure about the process. Legal advice may also be helpful.

Financial Considerations

Paying off the title loan will affect how much you pocket from the sale. Be prepared for a lower net amount, especially if the car title loan balance is high.

Keeping documentation in a safe place can help you in the future. Keep the bill of sale and the release of the lien in a secure place so that if you ever need them you know where they are. 

Conclusion

Selling a car with a title loan requires careful planning. By following these steps, you can navigate the process smoothly. Ensure the loan is paid off, understand the legal requirements, and prepare your car for sale to achieve the best outcome.

If you are interested in a title loan refinance we can help you! We have an easy obligation-free application that could help you get more favorable terms and keep your car.4 Visit our FAQ page to learn more or contact us with any questions you have. 

Frequently Asked Questions 

Do Title Loans Affect Your Credit?

In most cases, car title loans do not directly affect your credit score. Lenders typically don’t report payments to credit bureaus. However, if you miss payments and the lender repossesses your car, they might report the repossession, which could harm your credit. It’s always a good idea to ask each lender about their specific reporting policies.

What are 2 Advantages of Title Loans? 

  1. Quick Access to Cash: Car title loans provide fast approval and funding usually one the same business day. This makes them a convenient option for emergency cash up to $50,000.2
  2. No Need for Good Credit: Approval is based on the value of your car and your ability to repay the car loan, so having poor credit won’t disqualify you.1

What Will Happen If I Miss a Title Loan Payment? 

Missing a payment could result in late fees being added to your title loan balance. If you continue to miss monthly payments and default on the loan, the lender has the right to repossess your car to recover the outstanding title loan balance. This can be a serious financial consequence, so it’s important to stay current on payments.

Can I Use the Car I Am Buying as Collateral for a Title Loan?

Yes, as long as you own the car outright and the title is in your name, you can use it as collateral for a car title loan. Once you have the title, you can apply for a title loan and potentially borrow up to 50% of the car’s value.4

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Written by

Crystal Voogd

Crystal, with a bachelor's degree in Family and Human Services and a minor in Finance, offers a unique perspective. Specializing in personal finance, Crystal's clear and insightful writing covers topics such as title loans, budgeting, and credit management. Dedicated to empowering readers in their financial journey, Crystal provides reliable guidance for informed decision-making and stability.