Seller Financing a Vehicle in Washington: Promissory Note, Usury Laws & UCC Guide
Owner financing (also called installment sale or seller carry-back) lets a private seller act as the bank. This guide covers every document you need, Washington's usury rate cap, how to perfect your security interest, and what to do if the buyer defaults.
What Is Seller Financing for a Vehicle?
In a seller-financed vehicle sale, the buyer pays a down payment at closing and then makes regular installment payments directly to you — the seller — over an agreed period. No bank or credit union is involved. You carry the note.
This arrangement appeals to buyers who cannot qualify for conventional auto loans and to sellers who want to move a vehicle quickly or earn interest income on the unpaid balance. The risk is yours: if the buyer stops paying, you must enforce the note and, if necessary, repossess the vehicle.
Required Documents in Washington
Records the ownership transfer and purchase price. Required in most states to register the vehicle.
The formal IOU. States the loan amount, interest rate, payment schedule, and consequences of default.
Gives you a lien on the vehicle. The buyer cannot sell the car free and clear until the note is paid off.
Filed with Washington Secretary of State to make your lien public record and protect you against third-party claims. $30 filing fee (UCC-1 with Washington Secretary of State).
Washington Seller Financing Rules at a Glance
| Rule | Washington Detail |
|---|---|
| Maximum interest rate | 12% per year unless both parties agree in writing to a higher rate (RCW §19.52.020) |
| Title retention allowed | No — must transfer title at sale |
| UCC-1 lien filing | Required — $30 filing fee (UCC-1 with Washington Secretary of State) |
| Repossession process | Self-help under UCC Article 9 (no court order required absent breach of peace) |
| Filing agency | Washington Secretary of State |
Washington note: Washington has strict Consumer Protection Act provisions. If a court finds a seller-financed vehicle agreement unfair or deceptive, the buyer can recover treble damages up to $25,000. Use a clean, well-drafted installment agreement.
How to Sell a Vehicle on Installment in Washington
- 1
Agree on the sale price and down payment
Set a purchase price, down payment (ideally 10–20%), and confirm the buyer can maintain insurance on the vehicle throughout the loan term in Washington.
- 2
Draft a promissory note
The promissory note must state the principal amount, annual interest rate, payment schedule (monthly amount and due dates), total number of payments, and consequences of default. In Washington, keep the rate at or below 12% per year unless both parties agree in writing to a higher rate (RCW §19.52.020).
- 3
Execute a security agreement
A security agreement (separate from the promissory note) creates the seller's lien on the vehicle. It should identify the vehicle by VIN, describe the collateral, and spell out the seller's repossession rights on default.
- 4
Handle the title in Washington
Washington requires title transfer at the time of sale. Record your lien through Washington Secretary of State immediately after the sale to preserve your security interest.
- 5
File a UCC-1 financing statement (required)
File a UCC-1 with the Washington Secretary of State to perfect your security interest. $30 filing fee (UCC-1 with Washington Secretary of State). This filing gives you priority over other creditors and is the legal backbone of your seller-financing arrangement.
- 6
Collect and track payments
Issue written receipts for every payment. Keep a running ledger showing the outstanding balance, interest accrued, and remaining payments. Email receipts create a time-stamped paper trail if a dispute arises.
- 7
Release the lien on payoff
Once the buyer makes the final payment, immediately file a UCC-3 termination statement and release the lien on the title. Delays can expose you to liability in Washington for failure to release a satisfied lien.
Usury Laws in Washington
Washington's usury cap defaults to 12%, but private parties may contract for a higher rate if it is stated in writing. The agreed rate must not exceed 12% above the federal short-term rate or it may be challenged.
Title Handling in Washington
Washington requires title transfer at sale. The buyer must register the vehicle within 15 days. Record a lien through the Washington DOL when the buyer applies for a title. The seller is listed as lienholder on the new title.
Regardless of how the title is handled, file a UCC-1 financing statement with the Washington Secretary of State immediately after the sale. This creates a public record of your security interest and protects you if the buyer attempts to sell the vehicle, files for bankruptcy, or has other creditors.
Default and Repossession in Washington
Default occurs when the buyer misses a payment, fails to maintain insurance, or violates another material term of the installment agreement. Your security agreement should define what constitutes default and what notice (if any) you must give before exercising remedies.
Washington follows UCC Article 9 self-help repossession. After repossession, you must send a notice at least 15 days before any public sale or 15 days before contracting for a private sale, under RCW §62A.9A-614.
Risks of Seller Financing
Buyer defaults
Require a meaningful down payment (10–20%), verify income and references, and file a UCC-1 lien immediately.
Vehicle damage reduces collateral value
Require the buyer to maintain full-coverage insurance naming you as lienholder throughout the loan term.
Interest cap violation
Stay below 12% per year unless both parties agree in writing to a higher rate (RCW §19.52.020) and document the agreed rate in writing on the promissory note.
Buyer files for bankruptcy
A perfected UCC-1 lien gives you secured-creditor status, which is significantly better than unsecured creditor in bankruptcy proceedings.
Buyer sells the vehicle to a third party
A UCC-1 filing and/or lien notation on the title puts third-party buyers on constructive notice of your interest.
Seller Financing FAQ — Washington
What documents do I need to sell a car on installment in Washington?
You need a bill of sale (for the initial ownership transfer), a promissory note (the financing instrument), and a security agreement (creating your lien on the vehicle). In Washington, you should also file a UCC-1 financing statement to perfect your security interest.
What is the maximum interest rate I can charge for seller financing in Washington?
12% per year unless both parties agree in writing to a higher rate (RCW §19.52.020). Washington's usury cap defaults to 12%, but private parties may contract for a higher rate if it is stated in writing. The agreed rate must not exceed 12% above the federal short-term rate or it may be challenged.
Can I keep the car title until the buyer pays off the note in Washington?
No. Washington requires title transfer at sale. The buyer must register the vehicle within 15 days. Record a lien through the Washington DOL when the buyer applies for a title. The seller is listed as lienholder on the new title.
What happens if the buyer stops making payments?
Washington follows UCC Article 9 self-help repossession. After repossession, you must send a notice at least 15 days before any public sale or 15 days before contracting for a private sale, under RCW §62A.9A-614. Always consult an attorney before repossessing to ensure you comply with Washington notice requirements and UCC Article 9 procedures.
Do I need to register as a dealer to offer seller financing in Washington?
Private individuals who occasionally sell vehicles and offer financing are generally not required to obtain a dealer license in Washington. However, if you regularly engage in the business of selling and financing vehicles, dealer and sales finance company licensing may apply. One-off transactions between private parties are typically exempt.
What is a UCC-1 financing statement and why does it matter?
A UCC-1 financing statement is a public notice filed with the state government that tells the world you have a security interest in the vehicle. Without it, a buyer who fraudulently sells the car to a third party could leave you with no recourse against the new owner. Filing perfects your lien and gives you priority over most other creditors.
Generate Your Washington Vehicle Bill of Sale
Start with a legally sound bill of sale, then attach your promissory note and security agreement.
Create Bill of Sale