Selling a car with a lien

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If you didn’t buy your car in cash, you probably took out a loan and make monthly payments. The lender you borrowed from put a lien on your car that’s there until your loan is paid in full. This gives your lender a legal claim to your car if you don’t hold up your end of the loan agreement, like making timely payments.

Having a lien on your car creates some barriers to selling it, but it’s not impossible. Here’s how you can sell your car even when there’s a lien on it.

What is a car lien?

A car lien is a legal claim on your car until you’ve paid your outstanding debt. When you buy a car with an auto loan, you’re required to make minimum monthly payments. If you don’t, you could default on your loan and your car could get repossessed.

An auto loan is a type of secured loan. When you can’t repay an unsecured loan, like a personal or student loan, your credit score takes a nosedive. When you can’t repay a secured loan, the same happens, plus your collateral gets taken away. In this case, if you don’t make payments on your car loan, your lender has the right to take your car away.

Until you’ve completed your loan agreement, your car has a lien on it that gives your creditor the right to claim your car until you’re up to date on your outstanding debt. Once you’ve paid your loan in full, the lender (or lienholder) is removed from the title and you own your car free and clear.

How to sell a car with a lien

Selling a car with a lien means you haven’t paid your entire auto loan yet and want to get rid of your car. There are a few ways to go about this.

Do your research

Before listing your car or heading to a dealership, it’s important to know how much you owe on your car. If you’re just a year into your loan, you might have a harder time selling your car compared to someone who’s at the tail end of their loan agreement.

It’s also a good idea to compare different dealerships and buyers to see which one will offer you the best deal. If you know the value of your car from checking out Kelley Blue Book, this will make negotiations much easier.

Sell through a dealership

One of the easiest ways to sell your car with a lien is to go to a dealership.

This is good for both you and the dealer: you might want to get into a new car, and the dealer makes a sale. The easiest option is to sell your car to the dealer you want to buy from. The dealer will buy your existing loan from the lienholder and you’ll either start a new loan with your new car or roll your old loan into your new loan.

You might have a hard time if your car loan is upside down, meaning you owe more than the car is worth. Because of this, you should explore all your options before agreeing to a final sale.

Sell privately and make more money

Private sales take more work but might net you more money. Many private buyers are open to paying a little bit more to avoid going to a dealership.

When you list your car for sale, mention that it currently has a car lien on it. This lets potential buyers know that there’s still money owed on the vehicle. Potential buyers can pay off the loan so they own the car free and clear, whether through you or the lender.

Use an escrow account for more security

An escrow account lets both parties transfer money securely. It lets you know the buyer is serious about purchasing the car. You can verify the buyer has the money to buy the car, pay off the existing loan and complete the transaction.

An escrow account is a third-party service; neither you nor the buyer has more leverage with an escrow account. The account is simply there to hold the money until the agreement is fulfilled. Keep in mind there’s a fee to use the service, and you can cover the cost for the extra layer of security, pass that charge on to the buyer or split the cost.

The bottom line

While the term “lien” usually has a negative connotation, a car lien isn’t quite that bad. It means you still owe money on your car loan and your lender can repossess it if you fail to make payments on it.

But you can still sell your car, even with a lien on it. You can go to a dealership or go through a private buyer. It’s a good idea to do your research to see which one will give you the best deal. If you’re doing a private sale, consider using an escrow account for another layer of protection.

Learn more:

Private party auto loan: What it is and how to find one

How to get out of an upside-down car loan

How to refinance your car loan, and when to do it

Written by
Dori Zinn
Contributing writer
Dori Zinn has been a personal finance journalist for more than a decade. Aside from her work for Bankrate, her bylines have appeared on CNET, Yahoo Finance, MSN Money, Wirecutter, Quartz, Inc. and more. She loves helping people learn about money, specializing in topics like investing, real estate, borrowing money and financial literacy.