How to Sell a Car When You Owe More Than It Is Worth

Your payout letter says one number. The best offer says a smaller one. The difference is your shortfall.

It doesn't stop the sale. About a third of the sellers we buy from owe more than the car is worth. The lender gets paid in full, you cover the gap, and the car goes. The real decision is how you cover it.

How much are you actually short?

Two numbers, subtracted:

1. 1. Get a payout letter, not your app balance.

   Your lender gives you the exact amount to close the loan by a given date. Here's how.

2. 2. Get a real offer on the car.

   Not a listing price or what you paid. A number someone will actually pay, based on kilometres, claims and condition.

3. 3.Subtract. What's left is your shortfall.

Our shortfall calculator does the math, and shows what the gap costs if it's rolled into your next loan.

Do this before anyone comes to see the car. A shortfall you find at your kitchen table is a decision. One you find in the driveway with a buyer waiting feels like pressure.

Want the number for your own car? Get a free offer. It takes about a minute.

What happens at an Alberta closing when you're short?

The loan is registered against your VIN, and a registry agent can't transfer the car until it's cleared. So you can't agree to settle the gap with the buyer later.

On the day, it happens at a bank in a fixed order: the lender gets the full payout, and only what's left is yours. If nothing is left, you bring the difference then and there.

With a loan, our appointments take about an hour and a half, mostly waiting at the bank. See the full process.

What are your options if you owe more than the car is worth?

Four, though most people only hear about one:

1. 1. Cover the gap.

   Sell, pay the difference yourself, and you're done.

2. 2. Roll it into your next loan.

   The leftover balance gets added to the financing on your next car.

3. 3. Keep the car.

   Keep paying and wait for the gap to close.

4. 4. Hand back a lease.

   Ending a lease early and returning it at the end of the term cost very different amounts.

Only the first one ends it. Rolling it over moves it forward with interest, and it's the option you'll be offered most.

What does rolling negative equity into a new loan cost you?

More than the shortfall, and it's hard to see.

At the dealer, you're asked what monthly payment you're comfortable with. They hit it by stretching the term: 60 months becomes 72 or 84. Your old shortfall gets added to the new loan, and you start the new car already owing more than it's worth.

Even with about 10% down and nothing rolled in, a car takes around three years of payments to break even. Adding a shortfall makes that longer.

At a finance desk, ask two things: the total amount financed and the number of months. The monthly payment tells you neither.

Is it cheaper to keep the car?

Sometimes. Every payment lowers what you owe while the car loses value, and eventually the two cross. If the gap is small and you're near the end of the loan, waiting can cost less.

Not if the car is losing value fast: big repairs coming, or kilometres heading past about 130,000, where cars get noticeably harder to sell.

Compare a month to a month. How much does one payment take off the loan, and how much does another month take off the car?

What does DriveOffer do when the payout is bigger than the offer?

We work out the shortfall before anything is booked. We check what's registered against your VIN, and if the payout is bigger than the offer, we tell you the difference in dollars while you're still deciding.

See how the offer is put together.