Is it illegal to sell a car with finance on the car?

No, but you must first secure the permission of the agency that holds the official title for that vehicle. They are the ones that "own" it ... you do not own the car until your debt has been settled with the lending agency, therefore, it is not "yours" to sell.

What usually happens is that the prospective buyer will have to secure their own financing in order to purchase the car from the title holder. If paying cash, they will pay the lending institution, not you.