How To Sell A Car With A Lien
6-Minute ReadFebruary 11, 2022
When you finance a car with a loan, several legal constraints determine what you can and can’t do with that vehicle. In part, these constraints are enforced by a car lien that shows you're indebted to the lienholder. Ideally, you'll pay off your loan, the lender will cancel their lien, and you'll enjoy full ownership. However, you may find yourself looking to sell your car before it’s paid off for a variety of reasons. Thankfully, it is relatively common to sell a car with a lien. We have outlined the steps you can take to pursue this option.
Research Before Selling A Car With A Lien
The specifics of selling a car with a lien can depend on the terms of your loan, as well as the policies of the lender. While most lenders will allow a person to sell a car with a lien as long as they get their money back, there are other considerations to take into account. For instance, you need to know the breakdown of your monthly payments, the remaining balance on your loan and how much equity you have in the car before selling. Most lenders will help you figure out these details if it means closing out your debt to them.
Contact Your Lienholder
It’s important to know what to ask your lienholder and how to go about getting the answers you need to sell your car with a lien. First off, it's advisable to ask about the selling process with a lien. Once you've told the lender that you intend to sell, they may provide a lien release letter that allows you to create a new title and complete the sale. Alternatively, they may want to arrange a direct sale with a potential buyer. This can involve the buyer paying off the loan directly or buying into the loan agreement.
The next key question pertains to the outstanding balance. If you already have a sale price in mind, then it's easier to figure out if you'll have a net payoff. When your equity is less than the debt you owe on your car, then you'll still have an outstanding balance to pay off once you complete the sale.
Set The Selling Price To Pay Off Your Loan
Regardless of the value of your car when you decide to sell, you're obligated to pay off the outstanding loan balance. So, you should try to set the selling price to at least pay off the remainder of your loan, if it’s possible. You can use your vehicle identification number to find out how much your car is worth, and then subtract that figure from the amount you still owe.
If the car's value is greater than your debt, then you may walk away from the sale with some cash in your pocket. On the other hand, if the loan balance is greater than the current value of your car, you have negative equity, and you'll likely end up with an additional amount to pay off. Knowing where you stand equity-wise can help you decide on the best place to sell your car.
Selling A Vehicle With A Lien To A Private Party
Selling a vehicle with a lien directly to an interested buyer will get you the best return, but it's not an easy process. You need to have the time and resources to put the car up for sale, negotiate with potential buyers and schedule test drives. It's your best option if you can put in the effort and need to make more than your car's trade-in value.
Pay Off Your Loan If You Can
If you manage to pay off the car loan by selling, you can save hundreds or thousands of dollars by escaping future interest on the loan. Fortunately, the sale process can be fairly quick, since it typically only takes 2 – 6 weeks to receive a new title after paying off a loan. Once you've received a lien release letter from your lender showing that they no longer have a financial interest in the car, you can take it to your DMV and get a new title.
Have The Buyer Pay The Lienholder Directly
Having the buyer pay the lienholder on your behalf can streamline the whole process for everyone involved and lends credibility to the transaction. However, you'll need to contact your lender to see if this is an option and how to process the payment. A potential drawback is that you have to wait for the lienholder to pass any profit on to you.
Use An Escrow Service
In private sales, an escrow service can act as a trustworthy middleman who can hold both goods and money during the exchange. Once the service receives the proof of ownership and payment, they'll complete the transfer to ensure the contract is fulfilled. These services typically charge fees of 1% – 2%. Note that higher fees are a red flag and a sign of a possible scam.
Selling A Car With A Lien To A Dealership
Selling a car with a lien to a dealership is usually easy because they are equipped to take care of the whole process. Finding a buyer, arranging a sale and dealing with the steps to release the lien can be a big task for a private individual. For a dealership, buying a car with a lien into their inventory to sell later on is business as usual. However, this convenience can come at the cost. The dealership has to make sure they can sell the car they buy from you for a higher price than they paid to ensure they make a profit. In some cases, this means you may get less money for your car than if you were to sell it privately, but you can have peace of mind knowing everything is taken care of without too much effort on your end.
How To Trade In A Car With A Lien
Trading in a car for a more affordable model can be a great way to reduce your costs, as trade-ins tend to offer a better value than selling outright to a dealership. This is because they are not only buying a car from you, but they are making a sale in addition. When you pursue this route, you also can work with the dealership to use whatever profit you make from the sale to go toward a down payment for the car you are purchasing in the trade. This way, you don’t need as much money upfront and any extra cash you negotiate on the trade can go toward that down payment to help lower your monthly payment on the new car.
Selling With An Instant Cash Offer
If you're not interested in buying another car at a dealership and don't want to sell your car privately, you should consider getting an instant cash offer from a marketplace like Rocket AutoSM. This is a quick, convenient way to complete a credible transaction and walk away with cash in hand. These types of online car sales offer you the convenience of a dealership without the hassle of heading out to the lot. Usually, these offers are fair and don’t include negotiation, eliminating the headache of haggling.
Can I sell a car with a lien release letter?
The answer is yes, and this is an avenue to explore if you are looking to sell privately. A lien release letter is a document that proves the car has been released from a lien, and that the debtor’s loan has been fully paid or waived by the lienholder or creditor. In most cases, you need a lien release letter to free you from the lien, so you can obtain a certificate of title and transfer ownership. Sometimes you can sell a car without a title, but only in special circumstances.
I already sold a car with a lien on it. Now what?
If you sold a car with a lien on it without following the outlined steps, it's likely that you filled out the pink slip incorrectly and didn't officially transfer the title. You're still obligated to pay off the loan and the buyer will likely run into legal obstacles down the line. Get in touch with the lender and see what they advise in your circumstance.
Someone sold me a car with a lien on it. Now what?
A private buyer can sometimes end up unknowingly buying a car with a lien on it. If this happens to you, reach out to the seller and lienholder for clarification on what to do to make sure the lien is released and you get a clear title.
The Bottom Line: Pursue What Is Best For You
Knowing how to sell a car under lien is an important resource whether you need to sell a car for financial reasons or are hoping to get a good deal on a trade-in. After you determine your equity situation, you can consider selling your car privately, making a trade-in at a dealership or getting an instant cash offer. Once you've decided on the best way to sell, you can dive deeper into how to get the best deal on a car.
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