Buying a car with a lien Advertiser Disclosure Advertiser Disclosure We are an independent, advertising-supported comparison service. Our mission is to help you make smarter financial decisions by offering interactive tools and financial calculators that provide objective and original content. This allows users to conduct research and compare information for free and help you make sound financial decisions. Bankrate has partnerships with issuers such as, but not limited to, American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Earn Money The products that are featured on this site come from companies that compensate us. This compensation can affect the way and where products appear on this site, including for instance, the order in which they appear in the listing categories in the event that they are not permitted by law. Our mortgage, home equity and other home loan products. This compensation, however, does affect the information we provide, or the reviews appear on this website. We do not include the entire universe of businesses or financial offers that may be available to you. Alfa Photostudio/Shutterstock
3 min read published October 27, 2022
Written by Holly D. Johnson Written by an award-winning author, writer and author Holly Johnson writes expert content on personal financial, credit card, loyalty and insurance subjects. Alongside writing content for Bankrate and CreditCards.com, Johnson writes for clients on a regular basis including CNN, Forbes Advisor, LendingTree, Time Magazine and more. Written by Rhys Subitch Edited by Auto loans editor Rhys has been editing and writing for Bankrate since the end of 2021. They are passionate about helping readers gain the confidence to control their finances by providing clear, well-researched information that breaks down complicated topics into manageable bites. The Bankrate guarantee
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This compensation could affect the way, location and when products are displayed within the categories of listing in the event that they are not permitted by law for our mortgage or home equity products, as well as other products for home loans. Other factors, like our own rules for our website and whether a product is available within your area or at your self-selected credit score range may also influence the manner in which products are featured on this site. Although we try to offer a wide range offers, Bankrate does not include details about each financial or credit item or service. If you’re considering purchasing an used vehicle from a private seller be sure to determine whether the vehicle still has a lien attached to it by a lender. This can make the purchase more difficult, but it’s not difficult. This will require additional steps to ensure that the lien is eliminated prior to the transfer of title to you. What exactly is a car loan? A car lien lists the auto loan lender as the principal owner of the title. It is a contract that serves as a safeguard for the lender when a borrower is in default. The lienholder may make use of the lien to repossess the vehicle and that is the reason why they are considered . Once an automobile loan is fully paid off, the lienholder is free of any loan and the car is now owned outright by the borrower. How a lien affects the purchase of your car If you buy a vehicle with the lien, be sure the lien is gone before you complete the payment. If you’re buying by cash and pay cash, you may be able to work directly with the lien holder to pay the balance on your own. Start by contacting the current lienholder to determine the total amount due to get the car released as well as other stipulations which could impact the sale. You can then negotiate in conjunction with your seller. They’ll likely want to sell the car for a profit, but if you know the payoff amount, you might be able to negotiate an excellent deal and not pay more than what the car is worth. If you’re purchasing with an loan getting a loan from your own pocket to pay for the purchase should be relatively simple. It is possible to discuss the details of your transaction with your lender so it can facilitate payment to the lienholder. The remainder — should there be anyis paid directly to the buyer. After the lien is fully paid, either you as well as your lender will be issued the title and be able to record the vehicle in your name. Your lender will be listed as the new lienholder until you . If the seller pays off the loan prior to the purchase, the sale can proceed more easily if the seller of the car simply pays off his auto loan and obtains the title prior to the sale. This isn’t available to certain people, especially those who owe thousands of dollars for a newer car , or those who owe more than what the vehicle is worth. For instance, if the seller owes $20,000 for a car that sells privately at $17,000, they’ll still have to pay the lender $20,000 to $3,000 more than they’re getting from the sale. In these situations, the seller may choose to transfer the remaining amount of the auto loan into an unsecured loan similar to an individual loan, in order to have the auto loan discharged. Make the purchase official However you decide to handle the situation make sure you draft an agreement that outlines the method by which you plan to have the loan disposed of or transferred. Although it’s not required in all states however, it’s an excellent idea to draft an invoice of sale that outlines the transactions. It should be date-stamped and executed by both parties so that everyone is aware about the purchase. You might be able to utilize a third-party an escrow company to manage the financial side of this transaction. An escrow service will help ensure that the money to be transferred securely. Make sure you are aware that escrow firms charge fees for their servicesand you should set it up with the seller to ensure that you’re using a legitimate business. How do you determine whether the car you’re buying has a lien Ask the seller — they must be honest about the car’s ownership status. It is also possible to check the VIN, title and vehicle history report to ensure that the seller’s honesty. Check the number of your vehicle’s identification (VIN) with your state’s DMV. If there’s a lienholder on the title or registration, the DMV can provide you with. A title search will also provide information about lienholders. The is a good place to start looking for lienholder details. You should also get a car history report as well. Autocheck and Carfax have been regarded as two reliable companies that provide lien history in addition to prior maintenance, damages and owners. The bottom line is that there are many instances where people buy a used car with an unofficial lien from an individual without having any challenges or issues. To ensure the process goes smoothly and avoid any serious issues, you should know the steps you need to take to remove the lien. It is also important to research pricing, line up your own auto financing and have any agreements you sign with a private seller in writing. Learn more
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Written by Author, Award-Winning writer Holly Johnson writes expert content on personal financial, credit card, loyalty and insurance topics. As well as writing for Bankrate and CreditCards.com, Johnson writes for clients on a regular basis which include CNN, Forbes Advisor, LendingTree, Time Magazine and other publications. The article was edited by Rhys Subitch Edited by Auto loans editor Rhys has been writing and editing for Bankrate since late 2021. They are passionate about helping readers gain confidence to take control of their finances with precise, well-researched and clear facts that break down otherwise complex subjects into bite-sized pieces.
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