It is not illegal to sell a car with a lien on it, as long as you are able to pay off the loan on the car and you are able to transfer ownership to the new owner. However, if you do not pay off your loan on the car, you will not be able to sell the car because the lender still has right to the car and is still in possession of your title.
Most states make it illegal to sell a car that doesn’t have a title. If your title is stolen or if you lost your title, you can get a duplicate title from the Department of Motor Vehicles (DMV) in your state. If you don’t have a title because you are owing on a car and you sell the car, it is not different from selling a stolen car and this is considered as fraud and it is illegal.
Is Your Car Worth Selling?
To sell your car, it has to have equity. Equity is the values of your car. In other words, it is when the value of your car is more than how much you owe on it. Once you have equity, you might no longer need to make loan payments.
If you are upside down or if you have negative equity, then it is not worth selling the car. Negative equity is when your car is worth less than the amount of debt or loan you have on the car. You can only sell the car if you are able to cover the difference between your loan balance and the sale price.
Options for Selling your Car
There are two major options available to sell your car; you can either sell to a dealer or a private party.
Selling to a Dealer
It is much easier to sell to a dealer than selling to a private party. When you take your car to the dealership to sell, they will evaluate or appraise your car, pay off the existing loan on the car, and give you a check for the remaining balance at a low interest rate.
Your lender will get a release of lien letter from your lender, which will enable them to sell the car. The title will be sent to the dealer if you are in a title-holding state (only 9 states are not title-holding states).
Selling your Car to a Private Party
If you are selling your car to a private party, it requires a little bit of work. However, you are likely to sell the car to a private party at a higher price. Once you have agreed on the price of the car with the lender, you can visit the lender together with the buyer, so that the buyer can present a check for the outstanding balance. Your lender will provide you with a check for the amount you are owed from the sale, and then the title will be signed over to the new owner.
Learn more about liens via https://en.wikipedia.org/wiki/Lien.
