One of my buddies brought up a question. he just bought a new car a year ago and for whatever reason, wants to sell it. I asked him how can he sell the car if he doensn't own it yet?

Is there a way to "sell" his car even though he still owes money on it? He has another 4 years to pay off. I was thinking he could put an ad out for "take over payments" but wasn't sure how that would work.

Any people working at financing cars have any ideas?

 

The bank still owns the car, so basically you are going to buy it from the bank. If they will transfer the loan to you, then you could pay them. But your credidt rating might be different and the loan terms might be different. Most likely, he would need to pay off his loan, and you would take out a loan to pay him. I'll bet if you both went to the bank together, they could take care of it.

 

The bank doesn't own the car, they usually have the title as collateral. It's like selling a house. Most people owe on the house, sell it, and the proceeds pay off the loan. Unlike a house, your car is depreciating (especially year 1) so the seller may have to fork over sale proceeds plus cash to pay off the loan if the downpayment was small. It's a financial kick in the ***, but because of impulsivity or bad circumstances happens all the time. A good opportunity for a buyer, though!

 

The bank has the title AND the car as collateral. If you don't pay, they take the car. If you really owned the car, it would seem no one could take it away from you.

 

So if he puts an ad for "Take over payments", if the bank is willing, they could essentially transfer the loan to another person right?

But it sounds like from G-Rex's comments there could be some penalties for the person transferring the loan but also a great buy for someone interested.

 

I'm no finance expert, maybe some of the finance guys or frequent sellers can clear this up. My understanding is that the bank holds a lein, meaning they can take your property if you fail to pay your loan as agreed. Holding the title apparently varies by state, but the bank holds it as security on the loan, not in ownership. This may be all about semantics.
It makes the above situation difficult in that the owner has to either pay off the loan to secure the title free of leins then sell the car or come up with some 3 way deal to pass ownership to the buyer and pay off the loan at once.

 

I think the only penalty would be if the loan had an early payoff clause and the owner paid off the loan to sell the car. I'm not sure how common that is; my loan doesn't have it. If you're upside down on the loan (owe more than the depreciated value of the car), then you have to cover the difference of what a buyer will pay and what you owe when you pay it off. Also, if a guy's upside down on a loan and you take the loan in transfer, you'll be overpaying for the car!