Selling a car with patments left?
February 15, 2018 4:37 PM   Subscribe

I'd like to sell a car I'm still making payments to Carmax for.. is this possible, or wise (or even marginally intelligent)?

Long story short, my old jeep cherokee had to go and I had limited funds and time to purchase a new car, and I ended up at Carmax and ended up with a Honda Civic. That was about 2 years ago.

It's a fine car, I guess, but not really for me. I'd like to go for an SUV or something. I have more saved up now, but still not enough to buy anything outright.

So my payoff balance is around $11k, and KBB says trade in value is around $8k, private party sale is around $10k. I'm a money dummy (cash in cash out) so I need help. Heres some thoughts and assertions:

-If I tried to trade it in to a dealership, I'd basically be trying to sell them debt, right? That can't go well for me...can it?

-IF I did a private party sale (which sounds like a drag), I guess I'd have to pay off the balance first, then sell it, at which point I'd definetly be in the hole.

-If I tried to sell it back to Carmax....what? This part I'm confused about. They have the title, and they own say....75% of the car. Would I be just selling them my 25%, or is it such a complicated corporate arrangement between Carmax the auto seller and Carmax the financier that I'm essentially back to trying to sell debt?

-Would I be better off accepting my fate and just paying it off like a good boy, while saving my pennies for a new car down the line?

- If I am indeed better off just keeping it, instead of saving for a new car would I be better off throwing all the money I can at the payments in order to lessen the finance charges, and so I can own it outright before its value sinks too deep?

-Is desire the root of all suffering?

posted by hafehd to Shopping (8 answers total) 1 user marked this as a favorite
The bank already loaned you the money. You owe it to the bank whether or not you keep the car. It's a convenience that dealers (including CarMax) will pay off the loan directly when they buy it, rather than giving you the money and requiring you to send it to the bank, but they don't buy debt, they buy cars.
posted by restless_nomad at 4:44 PM on February 15, 2018 [1 favorite]

You take the car to Carmax (or, really, any dealer). They appraise its trade-in value at, say, $8k. You owe $11k. They will pay off the $11k that you owe, subtract the $8k trade-in value, and tack $3k onto the price of the car they're selling you. The next car loan that you get will be for "negotiated price of the car, including taxes and tags" plus "$3k they've paid off for you" minus "amount of your cash down payment".
posted by hanov3r at 4:57 PM on February 15, 2018 [5 favorites]

That's not quite true. The car is collateral on that loan, and you cannot transfer title to the car without permission from the bank.

hanov3r has a good explanation of how car dealerships clear that title transfer for you. But you would need to make up the difference immediately during a private sale in order to transfer the title to the new owner. You could use escrow accounts to protect both parties, but you would need to immediately pony up the difference to the bank. Otherwise you won't be able to transfer the title, and the sale will fall through.
posted by politikitty at 5:09 PM on February 15, 2018 [1 favorite]

If there’s nothing wrong with the car, and the only reason you’re considering doing this is to get a car you like better, especially a car that costs you more to drive than a Honda Civic (which an SUV would, in terms of both gas and insurance), then you are vastly better off keeping the car for another year until you are no longer upside down.

It would be a bad financial decision to assume more debt for a car than you have to. Throwing money at the existing car payments to pay the loan off more quickly would be a much better idea. Then you won’t have a car payment at all once it’s paid off, and you can look for a car you like, at your leisure, while saving up a larger down payment to put toward the new car.

I totally get that you want to Iike what you’re driving, but delaying gratification in this instance is the wiser choice here. It won’t kill you to be “meh” about your car for a handful of months longer. Use the time to research the kind of car you want to buy next. Don’t repeat the circumstances that put you in the Civic in the first place.
posted by Autumnheart at 5:09 PM on February 15, 2018 [21 favorites]

They appraise its trade-in value at, say, $8k. You owe $11k. They will pay off the $11k that you owe, subtract the $8k trade-in value, and tack $3k onto the price of the car they're selling you.

This is called being "upside down" on the loan - or having negative equity.

It can be advantageous to roll over into a new loan - say the original loan was 10% and your new car is financed at 4%. You'd realize some savings there, potentially.

But generally speaking, it is a really bad idea to do this. Because you are also responsible the transaction costs - tax, title, license, etc. Plus, the dealer needs to make a profit, so you'll pay their costs as well. And if you roll those into the loan, you get to pay the interest on that, too.

I've been in your boat. The best advice I could give you is to try and get "right side up" on the loan as soon as possible and then trade it in. In the meantime, put as much money back as you can - more down payment means you have a bigger budget for a car you like.
posted by Pogo_Fuzzybutt at 5:20 PM on February 15, 2018 [2 favorites]

I'm going to be a bit harsher than the other posters.

Two years ago, money was tight enough that having to buy a car quickly was a stretch. Have your circumstances changed enough that you can spend thousands on a whim, and you'll still have a comfortable cushion in case of an emergency? Since you describe yourself as "money in, money out", I suspect the answer is "no".

I know that you had to take out a loan in order to get a car, and that in many places, you NEED a car. That's OK, and was probably the right thing to do at the time. However, I'm somebody who *really* likes the serene feeling of knowing that I don't owe money on my car, and that if I had to replace it, I could easily buy a new-to-me car. That feeling is WAY better than the nagging suspicion of having overextended myself financially. So, I suggest you continue to save money and/or pay off the loan faster. (Which one is better depends on interest rates - I suspect you're better off paying off the car, but I don't know the terms of your loan.)
posted by Metasyntactic at 6:23 PM on February 15, 2018 [7 favorites]

In my experience, if you are going to sell it privately, e.g. via craigslist, almost no one wants the hassle of dealing with anything other than a clean title (one that is paid off and not owned by the bank). So in simple terms, you would pay off the car, get the title from the bank - which may take a few weeks - and then try to sell the car.
posted by AFABulous at 8:31 AM on February 16, 2018

You say "better off" a fair bit in your question. If you mean "financially better off", then almost everybody is better off keeping the car they have. Especially if the car they have is a Honda Civic.
posted by rhamphorhynchus at 1:43 PM on February 16, 2018

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