The Money Hawk

How to Sell a Car That’s Worth Less Than What You Owe

Posted on 06. Nov, 2008 by Kevin Geary in Finance

It’s no secret that Americans love cars. And we like to finance them with an average monthly payment of $400. In fact, cars are the second largest budget item for most Americans aside from their home. If I may opine, that’s insane.

Fortunately, many people across the country are realizing their insanity and trying to dump their cars and the payments that go along with them. The problem comes with trying to sell something that you don’t actually own. Many people don’t know where to start. The process is actually quite easy when you get all your ducks in a row.

Step 0: Don’t be stupid.

Don’t trade in the vehicle. You’ll get a lot more for it on the private market than you will through a dealer trade. The dealer has to pay a deflated price so they can turn around and sell the car for a profit. That’s profit that you can put in your pocket if you play your cards right.

It may be easier to trade in the car, but it’s not the best option. Do the hard work and reap the rewards.

Step 1: Research the Kelly Blue Book (KBB) Value and outstanding loan balance.

If you’re going to sell something, it helps to know exactly how much it’s worth. This solves two questions: how much to charge and how much of a difference you’re going to have to make up to pay the loan off.

You can get the average value of your car by visiting Kelly Blue Book (kbb.com) or Edmunds (edmunds.com). Both are free services. Make sure you print out the page. All potential sellers are very likely to visit these sites so don’t try to heavily inflate the price or you won’t get any calls.

Next, call the finance company handling your car loan and ask for the “payoff amount”. Write that down and proceed to step 2.

Step 2: Figure out if it’s within your means.

This step is either the deal maker or the deal breaker for you. If you can’t get passed this step, you’re stuck paying off your stupidity for the next few years.

You have a car and you have a loan. The difference between what the car brings and the outstanding loan balance creates a margin, or gap. You have to figure out a way to pay off this gap before you list the car for sale because you can’t get the title released to the buyer until this gap is paid.

How do I pay off the gap?

Do you have the money in savings?
Can you borrow the money?
Can you sell enough stuff to cover it?
Do you have any non-retirement investments you can sell?
Can you get a temporary part-time job to make the necessary amount?

If you can get this gap paid off, you’re in like Flynn.

Step 3: Prepare & market the car.

Your car needs curb appeal and a professional image. Make sure the car is clean inside and out and use a high quality camera to take good pictures. The better your car’s image, the more you’re going to get for it.

Next, figure out what you’re going to charge. If the KBB is $14,000, you can list the car for $15k or $16k. Just make sure the car is in good enough shape to reasonably ask that price without being laughed at or you’re never going to get any bites. You want to inflate the price a little bit because the buyer is going to haggle down.

Disclaimer:

If you need to get rid of the car NOW, don’t inflate the price beyond $500 and let potential buyers know that you’re willing to accept best offers. If it’s an emergency, then it’s not a time to try and make lots of extra money on the sale.

Now you have to get the word out to potential buyers. List the car on autotrader.com and LemonFree.com. If you don’t get any hits in a reasonable amount of time, consider putting the ad in the Auto Trader print magazine and in the newspaper.

Step 4: Prepare a Bill of Sale & accept payment.

Make sure you prepare and have both parties sign a bill of sale (sample). You must explain to the buyer that you do not own the car outright and therefore do not have a title. This should be no problem as you are signing a bill of sale (which both of you should get a copy of) and they are taking the car and leaving you with the money.

Only accept cash or cashier’s check. Do not accept personal checks and do not go with the person to get the money. It may be handy to have a counterfeit detector pen on hand if they are paying with cash.

Inform them that you have enough to pay off the car note and that you’ll be sending them the title via certified mail within the next couple of weeks.

Step 5: Pay off the car note, acquire title, and mail title.

Deposit the money paid to you by the buyer and add your gap savings to that amount and pay off the car note. The finance company will mail you the title. Mail the title to your buyer via certified mail with signature confirmation.

Make a new file in your filing cabinet and put all the necessary documents regarding the sale and the payoff in the file for safe keeping. Keep it forever.

Pat yourself on the back.

Go get your friend’s “easy button” (don’t go buy one, that’d be silly) and hit it. You just sold a car worth less than what you owed.

More importantly, you just dumped the monthly payment. Now go buy a cheap used car with cash and vow never to borrow money to buy a severely depreciating liability ever again.

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Tags: auto trader, car payment, Debt Free Living, for sale, KBB, loan, title, upside down, Used Cars