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Buying a car with a lien

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If you are considering buying a used car from a private seller, do your homework. Find out if the car still has a lien on it from a lender.

Buying a car with a lien is not impossible, but it can be more complicated. You will need to take a few steps to ensure the lien is removed before the title is transferred to you.

What a car lien is

A car lien is a contract that serves as a safeguard for a lender if a borrower fails to keep up with auto loan payments. If an auto loan falls into default, the lienholder can use the lien as a basis to repossess the vehicle.

Once an auto loan is fully paid off, the lienholder is released from the loan and the car is now owned outright by the borrower. Because of this, an auto loan is considered a secured loan.

How a lien affects your car purchase

When you are considering purchasing a car with a lien, ensure that the lien is removed by the time the car is in your hands.  

If you’re buying with cash

When you pay cash, you may be able to work directly with the lienholder to pay off the remaining balance yourself. Start by contacting the current lienholder to determine the total amount due to release the car as well as other stipulations that might affect the sale.

Then negotiate with the seller. They will likely want to sell the car for a profit, but if you know the payoff amount, you may be able to get a good deal — and avoid paying more than the vehicle is worth.

If you’re buying with a loan

Getting a loan of your own to pay for the car may also work. You can share the details of the purchase with your lender so it can facilitate paying off the lienholder. The remainder — if there is any — goes to the seller.

Once the lien has been paid in full, you or your lender will receive the title to register the vehicle in your name. Your lender will be listed as the new lienholder until you pay off your loan.

If the seller pays off the loan before the purchase

The sale can proceed more easily if the seller of the vehicle simply pays off their auto loan and obtains the title before the sale. However, this option isn’t possible for some people, especially those who owe tens of thousands of dollars on a newer car or those who owe more than the car is worth.

If, for example, the seller owes $20,000 on a car that sells privately for $17,000, they will still have to pay the lender $20,000 — $3,000 more than they’re getting from the sale. In such cases, the seller may choose to refinance the remainder of the auto loan into an unsecured loan, like a personal loan, in order to have the auto loan discharged.

Make the purchase official

However you handle this situation, be sure to write up a contract that addresses how the lien will be removed or transferred. While it’s not required in all states, it is still a good idea to create a bill of sale outlining the transaction. Make sure that it is dated and signed by both parties so everyone has a record of the sale.

You may be able to use a third-party escrow service to handle the financial side of this transaction. An escrow service will help ensure that the money for the sale is transferred securely. Just be aware that escrow companies charge fees for their services.

How to check if the car you’re buying has a lien

The seller should be upfront about the car’s ownership status. If not, it may be time to walk away from the sale — there are plenty of other options out there.

But if you’re intent on the sale, there are a few ways to check if the vehicle has a lien.

  • Look up the vehicle identification number (VIN) with your state’s DMV. If there is a lienholder listed on the title, the DMV will be able to tell you.
  • A title search will also give you information on liens. The National Motor Vehicle Title Information System is a good starting point to find lienholder information.
  • Get a vehicle history report as well. Autocheck and Carfax are two well-known companies that list lien history alongside previous maintenance, damage and owners.

The bottom line

There are plenty of instances when people buy a used car with a lien from a private party without encountering any challenges or issues. To ensure the process goes smoothly and avoid any major problems, do your homework and know what steps must be taken to remove the lien. You should also research pricing, line up your own auto financing and get any agreements you make in writing.

Learn more

Written by
Holly D. Johnson
Author, Award-Winning Writer
Holly Johnson writes expert content on personal finance, credit cards, loyalty and insurance topics. In addition to writing for Bankrate and CreditCards.com, Johnson does ongoing work for clients that include CNN, Forbes Advisor, LendingTree, Time Magazine and more.
Edited by
Auto loans editor