How Much Equity Should I Have in My Car Before I Sell?

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You're itching to sell your car so you can trade up to a newer model. There's only one problem: You still haven't paid off your auto loan. Do you have enough equity in the car to sell it? The amount of equity needed to sell a car varies; the key is to make sure you have positive, rather than negative, equity in your car.

How Do I Know if I Have Positive Equity in My Car?

You have positive equity in a car if the vehicle is worth more than you owe on your auto loan. If the car is worth less than you owe on your loan, you have negative equity, which is also called being upside down on your loan.

To figure out whether you have positive equity in your car, start by determining how much the car is worth. You can estimate the car's value using the calculator tools at the Kelly Blue Book or Edmunds websites. Just input your car's make, model, year, condition, mileage and other factors to estimate both its trade-in value and its private-party value. (Trade-in value is generally lower than private-party value; however, when you trade in the car, you don't have to deal with the hassles of placing ads, responding to buyers and showing the car.)

Once you have an estimate of your car's value, contact your lender to get the exact payoff amount you owe on your auto loan. (If you plan to sell the car privately, you should also get a payoff letter you can show to potential buyers.) Subtract the payoff amount from the car's value to see if you have positive or negative equity.

How Much Is Enough Equity to Sell My Car?

Before selling your car, you'll want to wait until you have enough equity to make a profit from the deal—otherwise, you'll get no benefit from the transaction.

For example, if the private-party sale value of your car is $10,000 and you owe $4,000 on your auto loan, you have $6,000 in positive equity. You could sell the car for $10,000 and pocket $6,000 in profit.

On the other hand, if the private-party sale value of your car is $4,000 and you owe $6,000 on your auto loan, you have negative equity of $2,000. When you sell the car, the lender gets the $4,000, and you still owe $2,000 on the loan—but you no longer have a car.

If you've got positive equity in your car but still owe on the loan, here's how the private sale and trade-in process would work.

  • Private buyer: Because the lender (not you) has title to the car, check with your lender to see how a sale will be handled. Some lenders want you to pay off the loan in full and take title before you can sell the car. Other lenders will let the buyer pay off the loan and send the buyer the title. Buyers will be wary about buying a car that you don't yet have title to, so you and the buyer may need to visit a local office of the lender to handle the transaction in person.
  • Trade-in: When you trade in the car, the dealer pays off the loan and gives you a credit for the remaining value of the car; this credit goes toward your next car. Although you'll make less money than in a private-party sale, the transfer of title is much simpler.

Making the Most of a Car Sale

To make a profit from selling your car, be sure you have positive equity in the vehicle. Want to maximize your profit? Wait until you've paid off your car and have the title to it; then sell to a private party. This will net you the biggest profits from the sale—giving you more money to put toward your next set of wheels.