How to Sell a Car With an Owner Finance Contract

by Leslie McClintock ; Updated September 11, 2015

If you have a car to sell and you don't need the full lump sum right away, you might consider owner financing the vehicle. In this arrangement, the owner retains the title to the vehicle or to some other suitable form of collateral. The buyer takes possession of the vehicle and makes payments according to an agreed-upon schedule. If the buyer defaults, the seller is entitled to take possession of the collateral.

Find a willing buyer. You can do this by word of mouth, by advertising or simply by discovering that a friend or relative is looking to purchase a car. You may be able to get a better price if you are willing to finance the vehicle yourself than you could if you insisted on being paid in cash.

Draft a promissory note. This note is essentially a contract between you and the buyer detailing the schedule of payment, any grace period that may apply, the interest rate applicable on the amount borrowed and the terms under which you as the seller are entitled to repossess the vehicle. You may want to have an attorney draw up the note for you. The agreement should also spell out the terms by which the agreement can be cancelled, from either side, and what happens if the buyer returns the vehicle to you with excess mileage or repairs needed.

Have the seller agree to and sign the promissory note. Both of you should have a copy so there is no misunderstanding about what the wording of the agreement.

Retain the title to the vehicle. Typically, you do not need to do anything extra with the title itself, though the possessor of the vehicle is responsible for registration and insurance.

Collect the payments due in accordance with the agreement. If the seller defaults, you may be able to repossess the vehicle. However, your state may have specific laws that govern vehicle repossessions. If you have a familial tie to the buyer, understand that repossessing the car may put a serious strain on the relationship.

Sign over the title to the buyer. You can typically do this by signing the reverse side of your vehicle title and having the buyer countersign it. The title form may also ask for the buyer's address, the mileage on the odometer and the date. Signing over the title effectively ends all your claims to the vehicle. You cannot repossess the vehicle at this point. You should only sign over the title if you have received all payments.

About the Author

Leslie McClintock has been writing professionally since 2001. She has been published in "Wealth and Retirement Planner," "Senior Market Advisor," "The Annuity Selling Guide," and many other outlets. A licensed life and health insurance agent, McClintock holds a B.A. from the University of Southern California.