Selling a Vehicle With an Outstanding Loan

Owing money on a vehicle does not stop you selling it. Most vehicles traded or sold to dealers in Texas still have finance on them. What matters is the gap between what the dealer will pay and what you still owe.

Equity, positive and negative

Ask your lender for the payoff amount - not your balance, and not your next statement figure. The payoff is what settles the loan today, including interest to the settlement date. Then:

• Offer above payoff (positive equity). The dealer settles the loan and the difference comes to you, or goes toward another vehicle.
• Offer below payoff (negative equity). You owe the shortfall. You either pay it, or - if you are buying another vehicle - it can be rolled into the new finance, which means paying interest on it. Rolling it is convenient and expensive; it is worth knowing which one you are choosing.

How the payoff actually happens

The dealer pays your lender directly. You do not need to clear the loan first, and you should be cautious of anyone who asks you to.

In Texas, once the lien is paid, TxDMV states the lienholder has 10 days after receiving payment to release the lien. If the lien was recorded electronically under the state's Electronic Lien and Title programme, the lienholder coordinates the removal with TxDMV and no action is required from you.

Where a paper release is needed, TxDMV requires an original signed release of lien on the lienholder's letterhead or on Form VTR-266 - and specifically states a photocopy, scan, fax or email is not acceptable. The sale itself uses Form 130-U, the Application for Texas Title and/or Registration, with the sales price shown.

What to have ready

• Your lender's name and your account number.
• A current payoff quote and the date it is good until - payoff figures expire.
• Whether the title is held electronically or as paper, if you know.

Why competing offers matter more when you owe money

If you have negative equity, the size of the gap depends entirely on the offer. A few hundred dollars between two dealers is the difference between writing a cheque and not. Getting more than one number is worth more here than in any other situation.

Read how competing dealer offers work, or send your details and find out where you stand.

The Texas procedures above are summarised from TxDMV published guidance and are accurate to the best of our knowledge at the time of writing. They are general information, not legal or financial advice - confirm specifics with your lender and with TxDMV.