First Car Guide for First Time Car Buyers

In order to sell your car, you must have the vehicle title to give to the new owner. However, if you are still paying off a loan, the loan company or bank is holding the title. Therefore, you must collect money from the buyer and use that money to pay off your loan, and get your clear title to sign over to the buyer, who can then have the title reissued in his name.

Since you and the buyer don't know each other, the buyer shouldn't simply trust you to use his money to pay off your loan and to send him the title. If you were dishonest, you could take his money and use it for a nice vacation. Of course, the bank will sooner or later come looking for the money or the car and you'll be in big trouble.

If the selling price for your car is more than your existing loan balance, you and the seller should go to your bank or loan company together. Arrange with the bank or loan company beforehand so that they can be prepared with your title. The seller will write a check for your loan payoff amount to the bank or loan company. He'll write a separate check to you for the remainder of the sale price. The bank will give the buyer the title, clear of any further liens. You give the buyer the keys to the car. It's also wise to write up a bill of sale with both your and the buyer's names, signatures, and date. Both parties should get copies.

If the selling price for your car is less than your existing loan balance, the money you receive from your buyer will not be enough to fully pay off your existing loan. You'll have to come up with the extra cash to make up the difference. You and the buyer should go to your bank or loan company together. The buyer writes a check to the bank, which you supplement it with the extra cash needed to fully pay off your loan. The bank gives the buyer a clear title and you give him the keys to the car. It's a good idea to write up a bill of sale to record the transaction, with one copy going to the buyer and one for yourself.