Can You Sell Your Car If You're Behind on Payments?

The short answer

Yes, you can usually sell a car while you're behind on payments, as long as the sale pays off the loan. The Consumer Financial Protection Bureau (CFPB) lists selling as one option when you can't keep up. First, find out how much you owe and roughly what the car is worth. If you owe less than it's worth, the sale can pay off the loan.

The catch is time. The CFPB says that in many states a lender can repossess after a missed payment, without warning or a court order. If selling is your plan, start now, not after the next due date.

Step 1: Call your lender before you list the car

The CFPB's first step is to contact your lender or servicer as soon as you know you can't pay. Ask what they offer. The CFPB says options may include a payment plan, a new due date, or a pause in payments (forbearance).

That call helps even if you still plan to sell:

• Ask for a payoff amount. Every offer gets compared to this number.
• Ask about a prepayment penalty. The CFPB says to check your contract for one before you pay the loan off early.
• Ask if they'd buy the car back. The CFPB says some lenders will.
• Get any agreement in writing. The CFPB recommends this in case a deal you made later shows up wrong on your credit report.

Step 2: Compare your payoff with real offers

Once you have the payoff, you need a real number for the car. One guess doesn't tell you much.

• If offers come in above the payoff: the sale clears the loan, and the rest goes to you.
• If offers come in below the payoff: you have negative equity. You'd have to cover the difference to clear the loan and release the title. Our post on negative equity trade-ins explains the math.

When you're behind, a few hundred dollars can decide which side you land on. That's why it pays to have more than one buyer look at the car. With PriceForMyTrade, competing offers come from local dealerships, and dealers can buy the car outright. You don't have to buy anything from them.

Step 3: Let the payoff close the loan

With a car that still has a loan, the lender holds the lien until the payoff arrives. Before you sign, ask the buyer how they'll send the payoff to your lender and when. Then keep checking with your lender until the loan shows as paid. Our page on selling a car with a loan payoff covers the basics. Our post on the Texas lien release explains what happens to the title next.

Selling vs. other options when you're behind

• Payment plan, new due date or forbearance: you keep the car. Only your lender can approve these, so ask first.
• Refinancing: the CFPB says a new loan could lower your rate or stretch the payments out. A longer term can mean more interest overall.
• Selling: you stop needing a car payment altogether, as long as the sale covers the payoff.
• Waiting: costs you time. The CFPB warns that a lender may be able to repossess after a missed payment.

Questions sellers ask

Will a dealer buy my car if I'm behind on the loan? A dealer is buying the car, and your payment history doesn't change what it's worth. What matters is whether the offer covers your payoff. PriceForMyTrade offers are confirmed after a physical appraisal.

What if my car was already repossessed? That's a different situation with different rights. Start with the CFPB's guide to what happens if your car is repossessed and talk to your lender right away.

Thinking about selling before another payment comes due? Get competing offers. It's free to sellers, first responses typically come the same day (not guaranteed), and offers are confirmed after a physical appraisal.

Source: CFPB, "What should I do if I can't make my car payments?"