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RPM Blog

The RPM Auto Wholesale Blog provides tips for buying and selling vehicles, humorous stories and narratives from the underbelly of the automotive industry.

How to Sell a Car with a Lien-5 Mistakes to Avoid

 

Selling a vehicle with an existing lien is not difficult but it does add an additional step or two to the process.  It’s best to know the ins and outs of this type of transaction before you get started with any sale.  Most importantly, you’ll want to avoid the 5 common mistakes listed below!


The first step in preparing yourself for the sale of a vehicle with an existing loan balance is to contact the lender and speak with an agent. Ask her to provide a 10 day payoff.  10 days is the standard length of time quoted in payoffs because it takes time to locate a buyer and get the payment to the lender.  Ask the lender’s agent for the payment types accepted, how they prefer to receive payment, the necessary paperwork required and if they hold a physical title or an electronic title.


Armed with the 10 day payoff, compare the outstanding loan balance to the expected sale value of your used vehicle. Learn how to properly price your vehicle.  If you owe more than a realistic sale price for the vehicle (negative equity), you’ll want to carefully consider your options. At this stage, it’s critical to avoid a situation where emotions cloud your marketing strategy.  Otherwise, you might find yourself in a situation where the payoff becomes the tail wagging the dog! The outstanding loan balance on your vehicle is not the market value of your vehicle.  If you owe more than the car is currently worth, you are either going to come out of pocket with the difference or delay selling the car until the opposite is true.



5 Mistakes to Avoid


Allowing a dealer to roll the negative equity into a new car loan:  If your credit is strong and you have a good amount of income, a new car dealer will find a way to sell you a new car.  They may “offer” to pay off your existing loan and can even make it appear on paper that they have paid you the full amount of the outstanding loan balance.  Nothing could be further from the truth. Your car’s value to a dealer is lower than it is to a private party.  They might be able to make you feel good about the transaction and even have you believing that you are making the right decision.  But is this really in your best interest?  Most likely it is not.  A new vehicle depreciates as much as 30% in the first year.  If you owe more on your current vehicle than the private party value it is because you bought it when you could not afford it and are now trying to do the same thing again.  A year from now the new vehicle loan balance will be further away from its’ market value than your current vehicle.  Of course there are always exceptions to any rule.  Try to avoid this situation most of the time but go into it with very open eyes if your personal situation dictates buying a new vehicle as a necessity.


Assuming that a trade-in is your only sales option:  Owing money on a vehicle is a common situation.  As many as 60% of new cars leave dealer inventory with a loan.  Just because you have a lien on your car does not mean you have to trade it to a dealer.  You will always sell a car for more cash if you sell it privately than if you trade it to a dealer.  It will take a little longer and will require a bit of effort if you sell it yourself but your patience and determination will be rewarded.


Offering to let someone take over payments:  Automobile loans all carry a due on sale clause.  Taking over a loan payment or a lease payment is an urban legend that originated in the days of assumable mortgage loans on real estate.  You might be able to “fool” your bank by letting someone else make the payments on your loan but the obligation still belongs to you as does the need for you to insure the vehicle.  In fact, the person taking over the loan would not be able to obtain an insurance policy since they do not have an insurable interest (don’t legally own the vehicle).  If someone wants the car, they will need to obtain their own loan or pay you cash.


Accepting a cashier's check for payment:  If someone gives you a fraudulent or stolen form of payment for your vehicle and you turn it over to the lender or pay the loan balance with personal funds, you are the person who is left holding the bag.  The lender is not going to release the lien and relinquish the title until the payment has completely cleared.


Releasing the title without first paying off the loan:  Many states (New York and Michigan are two) record a lien on the title and then send the title to the registered owner (you). A common fraudulent scheme in these states is to give the seller a fraudulent form of payment and ask for the title to the vehicle.  They leave with the vehicle and the title never to be seen again.  They continue the fraud when they forge a lien release and obtain a new title so that they can then resell the vehicle to an unsuspecting third party.


We buy cars from private parties nationwide.  We never meet our sellers in person and commonly purchase vehicles with outstanding loan balances.  One method we employ to protect ourselves is processing the entire transaction through the escrow company, Escrow.com.  You too can use them when selling a vehicle.  The protection you receive is well worth the additional cost of the transaction!


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