How to Sell a Financed Car With a Loan on It in Canada

Selling your old car is a great way to offset the purchase price of your next vehicle or earn some extra cash from a vehicle you don’t drive anymore. If you want the best price you can get for your old ride, Kijiji is a great tool for selling your car privately, which means selling it directly to another individual rather than going to a used car dealership.

Private sales cut out the middle man, which often means the seller can get a better price for their vehicle, and the buyer finds a bargain, too. It’s a win-win situation, but it can make things a bit more complicated if your vehicle still has a loan on it.

When you want to sell a financed car with a loan on it, the most important thing you need to know is that you will first need to pay off that loan unless you can find a buyer willing to take on the outstanding debt.

This article is designed to help you navigate selling a car with a loan on it. We’ll walk you through all of the options open to you and help you decide what makes the most sense for your situation.

Can You Sell a Car with a Loan on It in Canada?

When you take out an auto loan, you’re usually borrowing money from a bank, a credit union, or another auto lender, even if you arranged financing through the dealership. Until you pay off that loan, the lender has a lien on the vehicle. That means that they can repossess it if you default on the payments, even if you sell it to another buyer. That’s not a risk buyers will take. Typically, you will either have to pay off the loan or get the buyer to take on the debt.

How to Sell a Financed Car without Paying It Off in Canada

You have several options available to you if you’re looking to sell a car with a loan on it. Kijiji is the go-to place to sell cars privately or find a used car or used truck dealership looking to buy inventory. Here’s how to get started:

1. Evaluate your equity in the car before selling it
2. Sell your car to a private individual
3. Sell your car back to the dealership

1. Evaluate your equity in the car before selling it

The equity that you have in your vehicle should inform your decision on how to sell. If you have positive equity, you should be able to pay off the loan when you sell your car and still have extra cash to keep for yourself or put toward a new vehicle. However, if you have negative equity, you owe more than your car is worth, and you’re likely going to sell at a loss.

How to evaluate equity in your car

How do you know whether you have positive or negative equity in your vehicle? Equity is the value of your vehicle minus the debt still attached to the asset. There are two numbers you need to know:

• The outstanding amount on your auto loan
• The estimated value of your vehicle

You should be able to get an accurate estimate of your vehicle’s value with a used car value calculator, or you can look up similar vehicles on Kijiji.

Take the estimated value of your vehicle and subtract the outstanding amount on your loan. If the number is positive, that’s roughly how much money you should have left after selling your car and paying off the loan. If the number is negative, you have negative equity, and selling can be a bit more complicated.

2. Sell your financed car to a private individual in Canada

Whether you want to sell your financed vehicle to upgrade to a new car or to get out of your auto loan, selling to a private individual can net you a better return than selling to a cheap used car dealership. There will be some paperwork you have to deal with, but it can be a great way to earn more for your used vehicle.

How to sell a car privately when it is financed: step by step

Step 1: Pay Off the Loan

Before you can sell a financed car to a private individual, you usually need to pay off the loan. It’s typical to have to clear outstanding loans before you can transfer ownership of the vehicle. Until you pay off that loan, the lender has a portion of the vehicle title and can repossess the vehicle if you stop making payments. In some cases, sellers may take out a personal loan to pay off their auto loan, especially if they are confident that they can recoup the costs when they sell or they have no other option.

Step 2: Or Find a Buyer Willing to Take the Debt

If you cannot pay off the loan before you sell, you will need to find a buyer willing to take over the loan. Loan takeovers are not common, and private buyers usually want to buy a clear title. Additionally, not all lenders will allow you to transfer a loan, and there may be a fee for doing so. You may have better luck trying option 3: selling your financed car to a dealership.

Step 3: Sell the Vehicle

Once you’ve paid off the loan, you can start selling the vehicle. Listing it on Kijiji is a great place to start. It’s easy to manage inquiries with the Kijiji app – and you can get it now on iOS or Android. Take quality photos and include essential information, such as mileage, condition, make, model, and year.

Step 4: Paperwork

When you sell a car privately, there will be a bunch of paperwork that you and the buyer will have to deal with that the dealership usually would. The first thing you, as the seller, need to get is a Used Vehicle Information Package, as well as the VIN. The buyer will need this information to register Ontario plates. Other provinces have similar requirements that may go by different names, such as Alberta’s Vehicle History Report. If you’re not sure how to handle the paperwork, don’t worry. We’ve included more detailed information about documentation for a private sale further down.

3. Sell your financed car to a dealership

It’s often easier to sell used cars in Ontario and other provinces to a used car dealership, especially if you’re looking for a trade-in or you want to sell a financed car. The trade-off is that you’ll usually get less money for it. You can also search for vehicle trade-in deals with car dealerships on Kijiji.

Can I sell my financed car to a dealership?

Selling a financed car to a dealership may be the path of least resistance. Working with a dealership can make the process simpler, including dealing with financing, getting a dealership license plate, and handling the paperwork for transferring ownership. Just remember that it does come at a cost.

How to sell a car to a dealership when it is still being financed: step by step

Step 1: Decide Whether to Trade In or Sell Outright

Dealerships often offer trade-ins for when you buy a new vehicle. They can refurbish and flip your old vehicle at a profit and will generally offer more when you plan on putting that equity toward your next purchase.

Selling your vehicle outright is also an option, but they usually offer the least amount of money for this. It’s the main reason selling privately is usually the best choice when you’re selling outright.

Step 2: Determine the Dealership’s Pay Off Amount

Make sure you know exactly how much the dealership is paying you for your trade-in vehicle. Dealerships that sell cheap used cars still have a margin, which they can do for buying used cars for less. It’s especially important that you get as much as you can for your car if you have negative equity in your vehicle, as you’re still going to be in debt after the sale.

Step 3: Calculate Your New Financing Arrangement

Usually, when you trade in a financed vehicle at the dealership, the outstanding balance will be factored into the financing arrangement for your new vehicle. If you had positive equity, the remaining balance will be put toward the cost of your new vehicle. However, if you had negative equity, the outstanding balance on your loan will usually be added to your new financing arrangement, making your new vehicle more expensive instead of cheaper.

Paperwork & Documentation Required to Sell a Car with a Loan on It in Canada

When you’re selling a vehicle with a loan on it in Canada, there are several documents that you will need to make sure that the sale is complete and above board:

• Title to the vehicle
• Bill of sale
• Used Vehicle Information Package (or equivalent)
• Lien release
• Car service record

Title to the vehicle

This is the most important piece of paperwork you need any time you sell a vehicle, loan or not. This is your proof of purchase and ownership. If you still have a loan out on your vehicle, the lender’s information will be on the title. You will need to pay off the loan before your name alone is put on the title, enabling you to sell the vehicle unless the lender and buyer agree to transfer the debt.

Bill of sale

The bill of sale has all of the information on the exchange between the buyer and the seller. It’s effectively a written record of the transaction, signed by both the owner and the seller. The buyer may need it to register the vehicle, and it will be good for both parties to have should there be a disagreement in the future.

Used Vehicle Information Package or equivalent

In Ontario, sellers will need to purchase a Used Vehicle Information Package from the government of Ontario. Other provinces have similar documentation, though it may go by a different name, such as a vehicle history report in British Columbia. The UVIP contains information such as the VIN, plate numbers, make, model, and year, power type (gas, hybrid, electric, diesel, etc.), the body type, the price at which it was sold, and other information.

Lien release

A lien release is proof that you have paid off the loan on your car. Most buyers will expect confirmation that there are no loans outstanding on the vehicle so that they can purchase a clean title. A lien is a legal claim on the title of your vehicle by the lender, and the new owner will not be able to register the vehicle if there is still a lien. They may agree to pay this lien, but most buyers want to know that they don’t have to worry about someone else’s auto loan.

Car service record

The car service record shows a history of what work has been performed on the vehicle and when. It can show that a vehicle was well-maintained or if it had to be repaired after a major collision or a major defect was noticed. If you don’t have a service record handy, get in touch with the shop or shops where you took your vehicle for maintenance and repairs.

Things to Consider Before Selling Your Financed Car in Canada

Before you sell a financed car, consider your options so that you can make the smartest decision for your situation. Getting out of a vehicle loan can be tricky, and you don’t want to get stuck paying more than you need to. These are the top factors to keep in mind:

1. Refinancing your vehicle
2. Taking out a personal loan to pay off your auto loan
3. Dealing with a lease takeover
4. Upgrading your vehicle
5. Downsizing to a cheaper vehicle

1. Refinancing your vehicle

Not happy with the terms of your auto loan? Refinancing may allow you to pay less in interest or shorten your loan term. It’s a solution worth considering if you’re not urgently looking to sell your vehicle and you would rather pay off the loan first. Check out your car and truck financing options to see if there are better terms out there. Keep in mind that there may be fees involved, and you may need to have a good credit score to qualify for better terms.

2. Taking out a personal loan to pay off your auto loan

Let’s say you’re motivated to sell your vehicle right away, and you want to get top dollar by selling privately to an individual rather than a dealership. The only issue is that you still owe money on your car loan. The quickest way to sell your vehicle is to pay off the car loan. If you don’t have the lump sum payment to close off the debt now, you may be able to take out a personal loan to pay off the remainder of the debt. A personal loan like a line of credit is not secured with your car as collateral, releasing it from the lien that prevents you from selling the title.

3. Dealing with a lease takeover

What can you do if you lease your car instead of own it? A car lease takeover could be a viable option if you still have time on your lease and you’re ready for a new vehicle or you need to get out of a lease because you can’t afford payments. Once you find someone interested in a lease takeover, you will have to get in touch with the financing company that holds the lease, but a successful transfer means you no longer have to worry about the payments.

4. Upgrading your vehicle

If the reason you want to sell your vehicle is to upgrade your wheels, consider your options. You can get more to put toward an upgrade by selling privately, but a dealership that offers fair trade-in terms can make the process of selling a financed car much easier. Keep in mind that a car loan doesn’t disappear when you trade in with a dealership. It just gets rolled into your next loan.

5. Downsizing to a cheaper vehicle

If you’ve got buyer’s remorse about your vehicle, or you just want to find something cheaper so that you can save some extra money, downsizing can make a lot of sense. Used small cars can go for a lot less, and buying one can take the bite out of selling your current vehicle at a depreciated price. Downsizing can be a smart choice when you owe more on your loan than your car is worth.

Selling a Car with a Loan on It in Alberta

Selling a car with a loan on it in Alberta works in much the same way that it does anywhere else in Canada. The outstanding balance needs to be paid before you can get the title of the vehicle, and most private buyers don’t want to go through the hassle of taking over your liabilities. However, you might find an interested buyer at the right price, or you can pay off the loan in other ways, such as a personal loan.

Frequently Asked Questions About Selling a Financed Car in Canada

Can you return a financed car in Canada?

Before you buy a vehicle, make sure you’re familiar with how depreciation works. Vehicles are depreciating assets, meaning their value decreases with time. New vehicles depreciate the minute you drive off the lot. Because of that depreciation, car dealerships and lenders usually do not accept vehicle returns. Doing so would put them at a major loss because they can’t sell the car for the original price anymore. If you regret a vehicle purchase, you’re stuck with it and the debt from your loan.

Can I trade in my financed car for a cheaper car?

Yes, car dealerships offer all kinds of trade-ins. If you overspent on your previous vehicle or you just want to free up some more savings, buying a cheaper car is a great way to save money going forward. It’s a smart financial decision if you want to trade in but have negative equity in your vehicle.

Can I sell my car and keep paying the finance?

No, you will not be able to sell the vehicle if the lender still holds the vehicle title because you have outstanding debt. You cannot sell the vehicle and keep paying the terms of your loan. The buyer either needs a clean title that can be transferred to them, or they need to agree to have the loan transferred to them.

What happens if I owe more than I can sell my car for?

This is what happens if you have negative equity. If you owe more than your car is worth, you simply have to take that loss. It’s an unfortunate reality, but cars depreciate in value quickly, and it’s common for people to have negative equity in their car or truck.

Can I transfer my car loan to another person?

Yes, it is possible to transfer your car loan to another person who is willing to make payments for the agreed-upon contract. You will have to check with your lender, but it can be an effective way to sell a financed car and get out of a car loan that you wish you didn’t have any longer. Keep in mind that you may have to sell your vehicle at a lower price than if you had a clean title to attract willing buyers.

Does selling a financed car hurt your credit?

That’s a complicated question, and the answer is both yes and not really. If you sell your financed vehicle and pay off or transfer the loan without taking on any new debts, your credit score may see a temporary drop because you’ve closed off an account, depending on what your other debts look like. However, you’re going to be in less debt, which is generally good for your credit score, and the drop in your score from closing an account is only temporary. However, if you rolled negative equity into a new car loan, your higher credit utilization rate might also lower your credit score, and you still have to pay it off.

Selling a financed car can be a bit complicated, but if you understand your options and know how much equity you have in your vehicle, you can make the right financial decision. Kijiji is one of the leading options for listing used vehicles. List your car or truck on Kijiji to find more potential buyers than anywhere else.