Selling a Car with a Lien
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If you have a lien on your vehicle, you can still sell it, but the process will be more complicated. A lienholder is the financial institution or individual that holds the rights to the title of the vehicle. While you may or may not maintain possession of a title with a lien, the lienholder's signature will be required to transfer ownership once all debts have been paid.
Reasons you may have a lien on your vehicle include:
- The vehicle is financed and hasn't yet been paid off.
- Unpaid repairs.
- The vehicle was used in another transaction as collateral.
Selling Options for Vehicles with Liens
Once you've decided to sell your vehicle, you'll need to determine the pay-off amount.
The pay-off amount is the amount of money that will need to be paid to the financing company or other party to receive the title for the vehicle. This amount includes interest and other fees incurred up until the date your debit is satisfied, which could make the total slightly higher than your current balance.
Once you've determined what the dollar amount is, you'll have a couple different options for how to sell a vehicle with a lien:
- Sell to the dealer.
- Sell the vehicle privately.
- This process is more complicated, but the negotiated sale price is often higher.
In either case, the vehicle will be easier to sell if you owe LESS than its current worth. If you owe more than the vehicle is worth, you'll have a hard time selling unless you're willing to pay the difference. For more information, please refer to our page on Selling vs. Trading In a Car.
Selling to a Dealer
The easier option of the two is selling your vehicle with a lien to the dealership where you intend to purchase your new car. Once you give the dealer a power of attorney, the dealer will contact the lender directly and handle all financial arrangements.
Please note that you are NOT trading in your car, because you don't actually own it. You must satisfy your loan first, and that's what selling it to the dealer will do.
The dealer will pay the existing balance and give you a check for any amount over the negotiated sale price. You may also choose to have this amount applied toward the purchase of a new car.
Before the transaction is complete and you leave your car to the dealership, make sure you receive documentation that your lien has been satisfied.
Selling to a Private Party
Though more effort will be required on your part, selling a car with a lien privately could net you a higher profit.
Here are a few things you'll need to consider to make the process easier:
- Include the details of the lien in your listing.
- You'll list an advertisement for your car just as you would any other vehicle, with the addition of the lien information that buyers will need so as to avoid confusion.
- Sell in the location of the lienholder, if possible.
- If the bank or financial institution holding the lien is located in the area you're trying to sell, this will make the transaction much easier.
- Once you make an agreement with the buyer, you can go directly to the lender to pay off the existing lien. Ownership can then be transferred in person from the financial institution to the buyer.
- Consider an escrow service.
- If the financial institution isn't in your area, an escrow service can help to ensure a secure transaction.
- An escrow service will assume responsibility for receiving payments from the buyer and will hold the title until the purchase is complete.
- Advantages of an escrow service include:
- Payoff services, which will do most of the work with the financing institution for you.
- Title transfer services, which can help to ensure a safe and legitimate transaction and provide the necessary paperwork once the sale is complete.
Since an escrow service will usually benefit both parties and make fraud attempts less likely, the fee for escrow services can often be split between the seller and buyer to reduce costs on either end.