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Buying a car with a lien on it

Dear Dr. Don,
If someone is currently paying a loan on a car, can I buy that car from them? If so, how is this possible?
-- Greg Gassed

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Dear Greg,
The seller has to jump through some hoops to successfully close this transaction, but it can be done. The central issue here is to make sure that the loan is paid off so the lender will release the lien on the car's title, allowing you have an unencumbered title on your new wheels.

The easiest approach is to contact the lender and inquire about the process. It's a routine process for them, and they can guide you though the steps you need to take. It's also a good idea to check out the title and vehicle registration requirements on your state's department of motor vehicles Web site.

If you're a belt-and-suspenders type, you can use an escrow service to complete the transaction. I'd decide based on the comfort level I got from speaking to the lender about the lien release process. Over the years I've only purchased one used car that had an outstanding loan on it and that transaction went smoothly without using any outside service other than a notary. But that notary was at the lending institution, and the seller and I closed the transaction at the lender's offices.

Bankrate.com's corrections policy-- Posted: Nov. 21, 2005
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