There are many situations where this could be taxable. You did sell the vehicle, maybe the price was exactly equal to the loan balance so no cash changed hands, but you did sell the vehicle. Here are some examples.
John buys a car for $30,000 with $5000 cash and a $25,000 loan. John can't make payments so turns in the car. The dealer sells it to someone else (used) for $20,000. John still owes the remaining $5000. If the lender forgives the loan, that's taxable income and is reported on a 1099-C (not the whole $25,000, but the $5000 deficiency). John received the benefit of the $5000 (use of the car for a period of time), and didn't have to pay it back, so it is considered income.
Joan buys a car for $30,000 with $5000 cash and a $25,000 loan. Joan can't make payments so turns in the car. The dealer sells it to someone else (used) for $28,000. The loan is paid off and the remaining $3000 is sent back to Joan. This is not taxable income because the selling price ($28,000) was less than the original purchase price.
Jane buys a car for $30,000 with $5000 cash and a $25,000 loan. Jane uses the car only for a self-employment business and takes a $30,000 deduction for depreciation. The business fails and Jane turns the car in. The dealer sells it to someone else (used) for $20,000. Jane still owes the remaining $5000 on the loan. If the lender forgives the loan, or it is closed in a bankruptcy proceeding, the $5000 deficiency is taxable income to Jane. In addition, because the car was depreciated and the adjusted cost basis was zero, Jane also has a $20,000 income as depreciation recovery for her business.
Jim buys a car for $30,000 with no money down and a $30,000 loan. After 3 years, Jim wants to unload the car. The remaining loan balance at that time is $20,000. If the dealer takes the car and closes the loan, then the dealer has "bought" the car for $20,000, the outstanding loan balance. This is not taxable income to Jim because it is less than Jim's purchase price. However, if Jim has used the car for business (Uber, DoorDash, etc.) then Jim must consider the depreciation that was included in the mileage deduction he took. If Jim claimed depreciation for business use of the vehicle, then a portion of the $20,000 selling price could be taxable income to Jim (it would be depreciation recapture income on Jim's schedule C.)
There may be more examples. We would need more details of your situation to give you a better explanation.
