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How to Buy A Used Car with A Lien

Owning a car is the American dream. Who wouldn’t love to drive around in their own vehicle and live a comfortable life! But what if you purchase a used car that was financed and the owner still owes a debt on it? This would be a nightmare for anyone, wouldn’t it?

It’s essential to research any used vehicle for sale. You can use the following resources:

  • Edmunds: On this website, you can read up about used cars in san diego reviews and details on vehicles similar to the one you wish to purchase, to make your job easier.
  • Kelley Blue Book: You can find out if the car you are interested in is really worth it based on its specifications and condition.
  • Carfax: You can quickly check the car’s history, including accidents, by just entering the VIN on this portal.

The whole process of purchasing a car becomes complicated when there is a lien on it. What exactly is a lien? Simply put, when a lien is placed on a car title, it means that there is an outstanding loan on the vehicle. If the repayment is not met, the creditor may be able to seize the car that is the subject of the lien.

With a lien on the car, you may not be able to do the following-

  • Transfer the title to your name
  • Register/Insure the car
  • Get a loan for purchasing the car

Although a difficult situation, it can be solved. First, find out if the car you want has an outstanding lien on it. To do this, you will require the car’s vehicle identification number, which your seller can provide. Feed this number onto your state department’s motor vehicles website.

Now, that you know your car has an outstanding loan balance on it, you can either pay it off by yourself to the lender or follow the steps below.

1. Ask Your Seller to Clear the Debt

A simple solution is to ask your seller to pay off the loan on the car. After clearing the debt, he can officially obtain the title and then transfer it to you. If he is not able to pay it off, he might have to take a loan, but if you want the car, you’ll need the title.

If the seller plans to use the amount you are paying him for the car to pay it off, get documentation from his financial advisor or bank, stating that the loan was paid in full.

2. Accompany the Seller to Pay off the Loan

It would be smart if you accompany the seller to his lender so that you can be a hundred percent sure that he has paid his debt in full and got the title. The lender can then transfer the title to you, and you’ll be sure that the lien is cleared.

3. Set up an Escrow Account for the Car

If you want a hassle-free solution, then setting up an escrow account is your go-to option. An escrow service will hold onto your money and the car title while it manages the seller’s car payment collections. Your escrow company will work with the seller’s financial institution to ensure that the payoff is done so that you’ll get all the necessary paperwork required for the sale of the car via the escrow company.

4. Get a Title Loan to Pay the Lien

You can get a title loan to pay the lien. You should consider this route if your seller can’t refinance the title loan. Your bank or financial institution will take care of the paperwork along with the lien holder to minimize the chaos. But you should know that taking out a title loan will generate another lien on the car from your bank or finance company.

5. Get Help from a Car Dealer

A car dealer might be willing to buy the vehicle from the seller and then sell it to you. Ultimately, you’ll get the car without going through the troubles of clearing the debt.  For this, the seller would have to give the dealer the power of attorney so that they can work with the buyer to complete the deal. Before you purchase the car, agree on a price with the seller and make sure that the debt owed by the seller is not included in your deal.

You should never forget to ask for documentation of everything associated with the purchase. You will need:

  • Certificate of title
  • Bill of Sale
  • Receipt from the car financing company stating that the debt has been settled

For further assistance, check out your state’s DMV website or call a local DMV representative. You should have information related to fees and paperwork, so you have more clarity on what you are getting into.

Also Read: Used Car Loan Interest Rates in India


Buying a used car is not that uncommon, but buying a used car with a lien can lead to complications. Before making the purchase, you should analyze if the vehicle you want to buy is worth all the effort. Research as much as you can and make sure that the car is in good working condition. Go through the pros and cons of buying a used car with a lien on it.

Buying a used car always has a certain degree of risk associated with it. Instead of buying a used car with an outstanding loan, you can go for other alternatives such as buying a certified pre-owned vehicle or a domestic car which costs less than the foreign car but is similar in quality.

In the end, you should consider all the aspects and make an informed decision before investing your time, money, and energy into buying a used car with a loan. It’s better to be prepared for all the possible outcomes than to face an unpleasant surprise.

Ajeet Sharma, the founder of Financegab and a well-known name in the field of financial blogging. Blogging since 2017, he has the expertise and excellent knowledge about personal finance. Financegab is all about personal finance which aims to create awareness among people about personal finance and help them to make smart, well-informed financial decisions.


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