Selling A Car With A Lien

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When you take out an auto loan to purchase a vehicle, the lender puts a lien on your car that remains in place until you pay the loan in full. The lien gives the lender a legal claim to the car if you don’t pay the loan as agreed. The lender keeps the title until you’ve paid your loan off.

But what if you want to sell your car before you’ve paid it off? Selling a car with a lien can be difficult, but it’s not impossible. Your lender will likely allow it. But you will need to get permission first.

How to sell a car with a lien

The good news is that even if you have a car lien, you can still sell your car. You will need to contact your lender and research the value of your car.

1. Contact your lender

While you are repaying your loan, the lender holds a lien on the car. If you default, the lender can then repossess the car because they are the lienholder. When you pay off the loan, the lender files for a lien release, and you gain full vehicle ownership. As such, you must get a payoff amount and permission from the lender — the lienholder on your vehicle — to sell.

This information will help you determine how much you need to sell the car for to fully repay the debt. This step is also important because the loan payoff amount may differ from the outstanding balance on your loan statement. There may even be early payoff fees that increase the final cost of your loan.

You’ll also want to ask the lienholder about other stipulations regarding selling the vehicle. These might include the proper steps to transfer the car’s title to a new owner if you’re selling the vehicle to a private owner and not a dealership.

2. Research your car’s value

Compare dealerships and private buyers to see which offers the best deal. Learning your car’s value from sources such as Kelley Blue Book or Edmunds will make negotiations much easier.

You should be able to get quotes from dealerships on what they would pay for your car. Most trade-ins have liens, so it shouldn’t impact your car’s overall value. 

If your current car value is less than the payoff amount, hold off on a sale if possible. Otherwise, you may work through the hassle of selling a car with a lien and still owe money to your lender after.

Luckily, there are ways to increase your car’s trade-in value and, thus, the equity you have in the vehicle. Consider taking care of any mechanical problems and repairing any cosmetic damage.

3. Choose a way to sell

A dealership will likely be the simplest option when your car still has a lien. However, a private buyer may offer more for your car — although the process will be more complex.

Sell or trade in at a dealership

One of the easiest and quickest ways to sell or trade in a car with a lien is to go to a dealership. Dealers know how to work around liens and will likely handle most of the paperwork.

This option usually nets you less money overall — dealers don’t spend as much as a private buyer — but the convenience could be worth it. Your lender may oppose a private sale but accept selling to a dealership. Note that you might have a hard time selling if your car loan is upside-down, meaning you owe more on the vehicle than the car is currently worth.

Pay your loan before selling to a private buyer

If selling your car with a lien is too complex, consider paying off your car first. The lender will send you your title, and you can follow your state’s process for title transfers to the new owner. Your buyer can make the purchase free and clear, which is less work for you both.

Unfortunately, you do need the funds to pay off your car in full. Without that, it won’t be an accessible option. But if you want to avoid selling your car with a lien, this is one of the simpler methods.

Have a private buyer pay off the loan

Selling your car privately may take more effort and time, but it can allow you to make more money. Many private buyers are open to paying a little more to avoid the hassle of going to a dealership.

Contacting your lienholder in advance is crucial as they may disallow private sales or have a specific process. If you can sell your vehicle privately, your lienholder will instruct you on how to fully pay off the vehicle, whether through you or your buyer.

When you list your car for sale, mention that it currently has a car lien on it. Consider using an escrow account when working with a private buyer. These third-party services let both parties transfer money securely for a fee.

Bottom line

Selling your car while it is under a lien is possible. There are several ways to do this, including going to a dealership or going through a private buyer.

Do your research to determine which will give you the best deal for your car. And if you’re selling your car privately, consider using an escrow account for another layer of protection.