How to sell a car with negative equity
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Updated on by Andrew Crowell
If you financed your vehicle and your loan balance is greater than the price you can sell your car for, you have negative equity. That means you'll need to pay your lender more than your buyer pays you when you sell your car. If you trade your vehicle into a dealer, you'll have to either pay the dealer the negative equity portion or roll it into a new loan (not recommended). Having negative equity is also sometimes referred to as being "underwater" on a loan, meaning you owe more than the vehicle is worth.
Vehicles depreciate quickly, especially when bought new, and having negative equity isn't uncommon. This article describes how to determine the amount you'll need to pay to sell your car and a few options to consider.
Step 1: Find your loan balance
Log into your lender's online banking portal or take a look at your last billing statement. There should be a "current balance" or "payoff" section. This is the amount you have to pay your lender in order for them to release their lien on your title. All liens have to be released before you can sell your car and transfer ownership to a private buyer (dealers pay off the loan as part of your sale or trade-in).
Make a note of your loan balance, you'll use this later to calculate your equity.
Step 2: Estimate how much your vehicle is worth
Go to Kelly Blue Book or NADA to get an estimate of your vehicle's value. You'll want to make a note of both the private party selling price and trade-in price. If the site provides "Retail Price", you can ignore this. This is the price a dealer is likely to sell the vehicle for, but that's not you.
Sometimes valuation sites like KBB aren't perfect. They're based on historical data and the used car market can be volatile. You might also have a rare car that doesn't have much past sale data to go on. You can check various marketplaces like Facebook, Craigslist, and Cars & Bids to see what people are listing similar vehicles for. This won't tell you what they sell actually for, but if the advertised prices are wildly different from the value you see on KBB, it could be useful information.
Step 3: The difference is your equity
Subtract the private party selling price you found in step 2 from the loan balance you found in step 1. The difference between what you owe and what your vehicle is worth is your equity. If it's worth less than your loan balance, you have negative equity.
Equity = Selling Price - Loan Balance
If you have negative equity, then you'll need to pay your lender more than a buyer is willing to pay you in order to sell your vehicle. How much you have to pay depends on how you sell. Typically, private buyers are willing to pay more than dealers, so you can minimize the amount you need to pay by selling your car yourself. You can easily see this difference by calculating your equity using the private party price and then comparing it to the same calculation using the trade-in price. You'll always save at least 20%.
Selling a financed car privately can be tricky
You always save money when selling your car privately, but buyers expect to receive a clear, lien-free title. Dealers can pay your lienholder directly and usually have a smooth process for buying financed cars and obtaining the title, but then you're only getting trade-in value for your car. Alternatively, your lender might have a process to help you sell to a private buyer. Give them a call to find out. Lastly, you could pay your entire loan balance and wait 3-6 weeks to get a clear title before selling your vehicle. Read our article about selling a car with a loan for pros and cons of each option.
KeySavvy pays off your loan in a private sale
If you want to maximize your price by selling privately, but don't want to pay your entire loan balance first, you can use KeySavvy. When you find a buyer and agree on a price, they can pay you with KeySavvy and we'll pay your lender directly just like a dealer (in fact, we are a dealer). If you have negative equity, we'll collect the underwater balance from you when your buyer pays. You can get the best selling price and your buyer doesn't have to worry about not getting a clear title right away. We'll even give them a temporary permit they can use to drive legally right away.
Rolling negative equity into another loan
If you trade your vehicle into a dealer, they might give you the option to roll your negative equity into the loan for your new car. This is generally not a good idea, if you can avoid it. The problem is that you'll almost certainly be starting your new loan underwater and if you're buying a newer vehicle, you'll be even more underwater when you go to sell that vehicle later. Your lender might even charge a higher interest rate if you roll negative equity into your new loan. If possible, sell your car privately to maximize your selling price or buy a much cheaper car so you have less debt.
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