If you are thinking about buying a used car from a private seller, do your homework. Find out if the car continues to have a lien onto it from a lender.
Buying an automobile with a lien isn't impossible, but it could be more complicated. You will have to take a few steps to guarantee the lien is taken away before the title is transferred to you.
What an automobile lien is
A car lien is a contract that works as a safeguard for any lender if your borrower fails to maintain auto loan payments. If the auto loan falls into default, the lienholder can use the lien as a basis to repossess the automobile.
Once a car loan is fully paid off, the lienholder is released in the loan and also the car has become owned outright through the borrower. Because of this, an auto loan is considered a secured loan.
How a lien affects your car purchase
When you are thinking about purchasing a car having a lien, ensure that the lien is taken away by the time the vehicle is in both hands.
If you’re buying with cash
When you pay cash, you might be capable of working directly using the lienholder to repay the rest of the balance yourself. Start by contacting the current lienholder to determine the amount due to release the vehicle as well as other stipulations that might modify the sale.
Then negotiate with the seller. They'll likely recycle for cash the vehicle for any profit, but if you know the payoff amount, you might be capable of getting a good deal — and avoid paying more than the vehicle may be worth.
If you’re buying having a loan
Getting a loan of your to cover the car could also work. You can share the facts of the purchase with your lender therefore it can facilitate paying down the lienholder. The remaining — when there is any — would go to the vendor.
Once the lien continues to be paid entirely, you and your lender will receive the title to register the automobile in your name. Your lender will be listed as the new lienholder before you pay off your loan.
If the vendor takes care of the loan prior to the purchase
The sale can proceed more easily if the seller from the vehicle simply pays off their car loan and obtains the title prior to the sale. However, this method isn’t feasible for many people, especially those who owe thousands of dollars on the newer car or people who owe more than the vehicle is worth.
If, for example, the vendor owes $20,000 on the car that sells privately for $17,000, they'll still have to spend the money for lender $20,000 — $3,000 more than they’re getting in the sale. In such cases, the seller may choose to refinance the rest of the car loan into an unsecured loan, just like a personal bank loan, to be able to have the auto loan discharged.
Make the purchase official
However you handle this situation, be sure to write up an agreement that addresses the way the lien will be removed or transferred. While it’s not necessary in all states, it is still a good idea to produce a bill of sale outlining the transaction. Make sure that it is dated and signed by both sides so all of us have a record of the sale.
You may be able to make use of a third-party escrow plan to handle the financial side of the transaction. An escrow service can help be sure that the money for the sale is transferred securely. Just be aware that escrow companies charge fees for his or her services.
How to see if the vehicle you’re buying has a lien
The seller ought to be upfront concerning the car’s ownership status. Otherwise, it may be time to walk away from the sale — there are many other available choices available.
But if you’re set on the sale, there are some ways to check if the vehicle includes a lien.
- Look in the vehicle identification number (VIN) with your state’s DMV. When there is a lienholder listed on the title, the DMV will be able to let you know.
- A title search will even give you information on liens. The nation's Motor Vehicle Title Information System is a good starting place to find lienholder information.
- Get a vehicle history report as well. Autocheck and Carfax are two well-known firms that list lien history alongside previous maintenance, damage and owners.
The bottom line
There are lots of occasions when people buy a used car having 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 understand what steps should be taken to remove the lien. It's also wise to research pricing, fall into line your personal auto financing and get any agreements you make on paper.