Buying a Car With a Lien: Steps To Take and Risks To Avoid

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If you’re in the market for a used car and you’ve looked at cars that are being sold by the current owner, you may have run across a car for sale that has a lien. A lien means that someone else, in addition to the current owner, also has a financial interest in the car. This can make purchasing the car a little trickier, but not impossible.

Here’s what you need to know.

What Does It Mean When a Car Has a Lien?

A lien means that there is a legal claim on the vehicle. The most common reason for this is that a loan was taken out to purchase the car, and the car was used as collateral for the loan. When the car is sold, any remaining balance on the loan needs to be paid before the car’s owner gets any remaining money.

Other types of loans may be on a vehicle, such as those that are placed due to legal judgments or unpaid mechanic bills. Just like a car loan, these liens must be satisfied when the car is purchased, and must be paid in full before the ownership of the vehicle can be transferred to the buyer.

Can You Buy a Car with a Lien?

You can buy a car that has a lien on it, but the lien must be fully cleared before you can take possession of the car. This can mean that it will take you longer to get the title, and the transaction to buy the car may be more complicated.

Steps to Buying a Car with a Lien

If you decide to buy a car with a lien, here are the steps to take to help the transaction go smoothly.

1. Check the Vehicle’s Lien Status

Ask the seller for the title and loan payoff details. You won’t get the signed title until the transaction is complete, but you can ask to see it to see who the lienholder is. When you see the payoff details, take note of the amount of the payoff. If it’s more than what you’re paying for the car, ask the seller where the additional money is coming from to satisfy the lien.

Use your state’s DMV website or a vehicle history report to check for liens. This will provide information on any liens the seller may not disclose.

2. Work With the Lender

Contact the seller’s lender to verify the payoff amount and process. Make sure you understand what the lender expects to release the lien.

Arrange for the lien to be paid directly as part of the transaction. This is the best way to be sure the lien is fully paid and that you will have a clear title to the car.

3. Use a Secure Payment Method

Use an escrow service, direct payment to the lender or dealership assistance to pay for the vehicle. Any of these methods will ensure that the lien is paid off first, before any excess funds are distributed to the seller.

Avoid paying the seller directly unless the lien is cleared beforehand.

4. Get a Lien Release and Title Transfer

The seller or lender must provide a lien release document that shows that the lien has been paid in full.

Ensure the title is transferred in your name only after the lien is paid. Of course, if you’re taking out a loan to purchase the vehicle, your lender will be named on the title as a lienholder.

Risks of Buying a Car With a Lien

There are some risks to buying a car that has a lien. Be sure to watch out for these.

There could be a delay in transferring the title of the vehicle until the lien is satisfied. In most states, you have 10 days to register a newly purchased vehicle, so make sure the lien is cleared and the title transferred within that time. Check with your state DMV, as this time limit can vary.

The seller may owe more on the car than they said they did. This is a problem if they don’t have enough money to pay off the lien, so this is why you need to know what is owed on the car.

Watch out for scams, like a seller who doesn’t disclose the fact that there is a lien or misrepresents the amount of the lien. Never buy a car from someone who insists they will pay the lien after they get your money. Make sure your purchase payment pays the lienholder directly.

Pros and Cons of Buying a Car With a Lien

Buying a car that has an existing lien has its pros and cons. They are outlined in the table below.

How To Protect Yourself When Buying a Car With a Lien

Because it can be trickier to purchase a car with a lien, you want to take some steps to protect yourself. Here are some tips.

• Verify the lien through DMV records or a title check. You want to know who the lender is and how much the lien is for.
• Never pay the seller directly. Instead, work with the lender or lienholder to pay off the loan in full.
• Use a bill of sale that outlines the terms of the purchase, including the payment of the lien.
• Confirm the lien is released before finalizing the deal.

Alternatives To Buying a Car With a Lien

There are other ways to buy a car that don’t involve dealing with a lien yourself. Here are some alternatives.

• Choose a car with a clean title and no outstanding liens to avoid extra steps.
• Buy from a licensed dealership, as they can handle lien payoffs and help the transaction go smoothly.
• If you’re financing the purchase of the car, work with a lender who can assist with lien resolution. It’s in their best interest to be sure your new car has a clear title, too, so let them help.

Final Thoughts: Is Buying a Car with a Lien Worth It?

Buying a car that has a lien on it requires some extra effort, but it can be a good deal. You can protect yourself in the transaction by verifying the lien, working with the lender to ensure the lien is paid off and the title is clear, and always using secure payment methods. If you’re not sure about buying a car with a lien, consider other options.

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