Problems Associated with Buying a Used Car with a Lien

Don't hand over any money if there is a lien.
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You’ve finally found the perfect used car and visualized yourself behind the wheel, and you’re determined to get it. Your mechanic even gave this ride the thumbs-up, and you're ready to drive away. Everything seems great, except for one slight detail: the car has a lien on it. This means the seller doesn’t own the car; the bank or lender does. You can still purchase the car in this case — but proceed with caution.

More Difficult to Buy

It’s more difficult to buy a car with a lien on it, but it’s not impossible. Whatever you do, don’t hand over your money to the seller, even if he tells you he needs your money to pay the lien. He might not pay off the lien, as he said he would, but pocket your money instead. This means the lienholder would still own the car, even after you paid the seller for it. Check with the lienholder — the bank, credit union or lending agency that holds the title — regarding what to do.

Can't Register

The seller needs to sign the title over to you before you can register the car. But that can’t happen until the lien is paid. Don’t buy the car without transferring the title. The title is a legal document, so you should never buy a car knowing you can’t get a clear title. It is also illegal to drive a car without its being registered and insured. If you did, you wouldn't be able to insure the car legally. You also won’t be able to sell the car in the future if you don’t have a title that was properly transferred.

What to Do

Some buyers physically go with the seller to the financial institution that holds the lien. The buyer pays the financial institution the money owed, and the seller gets the rest, if there is any. Call ahead of time so the title will be ready. If the title can’t be readied in time, the lienholder will mail you the title.

Financing the Deal

If you are not paying for the car in cash but are financing the deal yourself, you can still do the deal, but you have another party to involve. In this case, your lender needs to work with the lienholder. Your lender would pay the lienholder and then the seller if there is any money left over. Your lender is now the lienholder. You must pay off your lender to gain title of the car.

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