If you’re purchasing a used car that was financed and the owner still owes car payments on it, things can be complicated. All loans on a car with a lien must be paid off before the seller can transfer clear title to you to complete the transaction.
To find out if a car you want has an outstanding lien on it, do a lien search on your state’s department of motor vehicles website. This will require the car’s vehicle identification number, which you can get from the seller.
How Do You Buy a Car From Someone Who Has a Loan on It?
There are two ways to buy a car that has a loan that still has a loan on it, and thus a lien. You can pay off the loan balance yourself by writing a check directly to the lender, or you can ask the seller to pay off the loan.
Here are the details of each option for buying a used car that hasn’t been paid off:
1. Ask the Seller to Pay Off the Car Loan
One option to consider is asking the seller to pay off the amount owed on the vehicle so they can get the title. After the lender sends them the title, they can transfer it over to you.
2. Pay Off the Seller’s Loan
You can make a payoff payment to the seller’s lender, and the lender can transfer the title to you. Then you can pay the seller any remaining amount due on the sale.
3. Set Up an Escrow Account for the Vehicle
An escrow service will hold your money and the car title while it manages the buyer’s car payment collections. This might be the most convenient option because the escrow company works with the seller’s financial institution to ensure the payoff happens. It then provides all of the necessary paperwork for the sale of the car.
Scammers sometimes set up fake escrow accounts to steal money from would-be buyers, so contact the financial institution directly, using the phone number listed on its website, to verify that the account is legitimate.
4. Get a Loan to Pay the Lien
If neither you nor the seller has cash to pay off the loan, you might consider taking out a loan. Not all lenders finance a car purchase from a private party, but if yours does, it will take care of the paperwork with the lien holder, which helps streamline the process. Alternatively, you can take out a personal loan to pay off the seller’s loan.
Alternatives to Buying a Car With a Lien
If you’re thinking about how to buy a car with a lien, you might come to the conclusion that it’s just too complicated for your taste. Luckily, you have some other options:
1. Buy a Certified Pre-Owned Vehicle
Auto dealers typically put certified pre-owned vehicles through an inspection process and provide buyers with an extended warranty. These vehicles are usually late models that you can be sure are in great condition due to the rigorous inspection process and manufacturer seal of approval. Consumer Reports recommends verifying that the dealer did, in fact, use the manufacturer’s official program to certify the vehicle.
2. Buy a Less Popular but Affordable Vehicle
Consider buying a vehicle that is less popular but also less expensive — yet comparable in quality to the best-selling automobiles. For instance, a domestic car is likely similar in quality and features to a comparable foreign car but generally costs less.
The Basics of Buying a Used Car From a Private Party
Some risk is always involved in buying a used car from a private party because you don’t have as much recourse if the car turns out to be a lemon. Here are some actions to take when buying from a private seller:
1. Review the Pros and Cons of Buying From a Private Party
You have to decide if buying from a car from someone who has a loan is a good idea. You might be able to negotiate more with a private seller than a dealer, but the state and federal laws on dealership sales don’t apply to private sales. When you buy from a private seller, make sure you and the seller take care of all the paperwork involved:
- Transfer of the car title
- Transfer of the vehicle registration
- Bill of sale
- Associated taxes and fees.
2. Do Your Research
It’s important to research any private vehicle for sale. You have many resources available to do so:
- Edmunds: Find used car reviews and details about similar vehicles on the website to make comparison shopping easy.
- Kelley Blue Book: Find out what the car you’re interested in is really worth based on its specs and condition.
- Carfax: Enter the VIN and learn the vehicle’s history — including accidents — which might tip you off to some issues.
3. Check Out the Vehicle
When you go to see the car in person, check it out thoroughly. Take it for a long test drive in conditions that you typically drive, such as on the freeway or on surface streets.
Next, have a mechanic inspect the car. It’s worth the expense to find out for sure if the vehicle is sound and the asking price is fair, and it will also give you peace of mind that you are making a good car buy.
How Do You Get Around a Lien on a Title to a Car You’re Selling?
So, can you buy a car from someone who still owes money on it? Selling a financed car is a bit more complicated than selling one with a clear title. The first step is to determine the payoff amount, which is the dollar amount of much you owe on the car.
You can sell the vehicle to a private party, but remember, the car sale will be easier if you owe less on it than what it’s worth. That way, you can have the buyer pay off the loan and pay you cash for the rest of the sale price. Or you can trade your financed vehicle in at the dealership where you also want to buy a car, and either pay off the loan before you go or roll the balance in the loan you use to finance your new car.
Daria Uhlig, Andrew DePietro and Stacey Bumpus contributed to the reporting for this article.