How To Sell A Car With A Lien

Dustin Hawley | Mar 10, 2021

When your car has a lien on it, you don’t actually own your vehicle, and this can be confusing for some people. Don’t you already have a title for the vehicle, even if there’s a lien on it?

how to sell a car with a lien on it

Technically, you don’t. When there’s a lien on your car, the lienholder maintains legal control. While you have the right to register the car in your name and legally drive it, you do not have the right to sell that car to another person.

Yet there’s no need to panic, as it’s not impossible to sell a car with a lien on it. You’ll simply need to have a way to pay off your car loan before completing the sale. 

There are a few different ways to achieve this, so let’s break them down and discuss how to sell a car with a lien.

First, Call Your Lender

Before doing anything else, you’ll need to know exactly how much you owe on your car loan. Keep in mind; this amount may not be the same as the outstanding balance shown on your last billing statement. Furthermore, many lenders charge a penalty fee to borrowers who make their payments early.

The only way to know for sure is to call your lender and request your payoff amount. In some cases, this information may be available through your online account on the lender’s web portal.

Option #1: Sell The Car To A Dealership

In most cases, when you still owe money on your car, the easiest option is to sell to a dealership. Whereas private buyers cannot purchase a vehicle until the lien is paid, a dealership can. The dealer will then have a period of time, which differs by state, to pay the lienholder themselves.

For a seller, this makes the process relatively quick and easy. You drive into the car dealer, get an estimate, and walk away with cash (or a new vehicle if you are doing a trade-in). However, keep in mind that dealers typically pay less than private buyers, so be mindful that you probably won’t get as much for your car.

That being said, you need to be careful with selling your car to a dealership. If you owe more than you’re getting in trade value, the balance will still need to be paid, or the negative equity will be rolled into your new car loan. Let’s say you owe $7,500 for your car, and the dealer gives you $7,000 in trade value. The remaining $500 doesn’t just disappear; it gets tacked onto your new car loan. When negative equity gets rolled over into your new loan, it increases your monthly payment.

Option #2: Pay Off The Lien Yourself

As noted above, you can get better value by selling to a private buyer rather than a dealership. But in that case, you’ll need the resources to pay off the lien before you sell. That translates to either paying off the loan in full or finding a buyer who’s willing to pay off the loan themselves.

It’s easiest to pay off the loan yourself in many instances, provided you have the ability. In that case, the process is rather simple. You just need to call your lienholder and arrange payment.

Once your payment has been processed, your lender will contact your state’s motor vehicle agency, which will issue you a clean title. With a clean title in hand, you can then proceed to sell your car.

Option #3: Have The Buyer Pay Off Your Lien

A third option is to find a buyer who’s willing to pay off your lien. If you’re going to go this route, make sure to include in your vehicle listing the fact that your title has a lien on it, and the remaining payoff on the car.

There are several ways of transacting such a sale. If you’re dealing with a local lender, both you and the buyer can go to the lender’s office in person. There, the buyer will pay the lien, pay you whatever additional money you’ve agreed on, and receive the title. A new title may require a few weeks to be issued in some states, so keep this in mind.

Though this option theoretically seems like the easiest method, it isn’t right for everybody. For instance, If you’re not dealing with a local lender, the nearest office may be inconvenient to travel to. In that case, you’ll have to conduct the sale by mail, which can be tedious and time-consuming.

The exact process varies by state, and there are too many variations to list in this guide. But the basic concept is the same; the buyer transacts a sale with the lienholder, who receives your permission to transfer the title.

The drawback of this method is that the entire transaction is conducted in this fashion, including your share. For example, let’s say you owe $5,000 on a $10,000 car. The buyer would send the lender a check for the full $10,000.

Then, you have to wait for the lender to transfer the balance to you. In this situation, it could be weeks or even months before you get your $5,000. If you need that money to make a down payment on a new car, you’ll be out of luck until the bank decides otherwise.

A third option is to set up an escrow account. With an escrow account, the escrow service works as an intermediary between you, the buyer, and the bank. They receive the payment, then pay the lienholder’s share to the bank. As soon as the buyer gets their new title, your share of the payment is released.

An escrow service allows you to get paid faster than if you’d worked directly with the lender. It also gives the buyer the same peace of mind since the escrow service is guaranteeing the sale. 

Unfortunately, all these benefits and securities come at a price, as the escrow service will charge a fee, which the seller is responsible for paying. This will cut into whatever you earn on the sale.

Summary

Selling a car with a lien can sometimes be a complicated process, particularly for those who plan to sell to a private buyer. Make sure you talk to your lienholder first to see if it’s allowed under the terms of your contract. If it’s permitted, inquire about the preferred process for completing the sale and title transfer.

If you’re struggling to find a private buyer who is willing to buy a car with a lien, you may want to consider postponing the sale until you can pay off your loan.

Similarly, suppose you’re having difficulty selling or trading in your car at a dealership because you owe more than your car is worth. In that case, you may also want to consider waiting until you can build some equity in your vehicle by making extra payments or paying more than the amount due on your monthly statement. 

While it may be a bit of a process, there are ways to sell a car with a lien on it. Hopefully, we have outlined some of the best ways to accomplish this task and get your vehicle sold.

Explore new car previews
2020 Subaru Outback Preview
2020 Subaru Outback Preview
Introduced at the 2019 New York International Auto Show, the 2020 Subaru Outback has been optimized to offer better fuel efficiency, a quieter and safer ride, boosted technology, and turbocharged power, which is something Subaru hasn’t given its Outback in over ten years.
Read the full review
2022 Mercedes-Benz C-Class Sedan Preview
2022 Mercedes-Benz C-Class Sedan Preview
The redesigned 2022 Mercedes C-Class sedan will be sold all around the world and produced for those global markets in Germany, China, and South Africa. The compact 5-passenger sedan arrives in the U.S. market in early 2022.
Read the full review
2021 Ford Bronco Preview
2021 Ford Bronco Preview
Designed and engineered for maximum off-roading capability, the 2021 Ford Bronco is a direct competitor to the Jeep Wrangler and Toyota 4Runner. Available in 2-door and 4-door body styles complete with removable doors and roof, the new 2021 Bronco adopts a “Built Wild” ethos.
Read the full review
Read all articles
Scroll to the top
New Car Preview
2022 Mercedes-Benz C-Class Sedan Preview
Most Dependable
2019 Vehicle Dependability: Most Dependable Luxury Coupes and Convertibles
Most Popular
10 Most Popular Luxury Cars
New Model Update
New for 2019: GMC
New Car Preview
2022 Acura MDX Preview
More related
articles