After housing, cars are the most expensive things an American family will purchase. With the average price of a new vehicle hovering around $37,000, it’s no surprise then that many people take out loans to cover the cost. As part of the loan, the lending institution usually puts a lien on the vehicle, which means they effectively own the asset and hold the title until your debt is paid off. Liens can also be placed on vehicles by mechanics and towing and storage companies who haven’t been paid.
It may sound bleak for someone else to hold the ownership papers of a vehicle you possess, but it’s fairly commonplace. It’s also normal for people to sell cars and trucks with liens on them, although it’s just a tiny bit more complicated, particularly for sellers looking to maximize income by finding a private party buyer. But even that is doable with a little patience and the right information.
There are a few different ways to sell a car with a lien against it. Here are a few tips on how to make the process as simple as possible:
1. Find out how much the vehicle is worth
Don’t trust the assessment of a friend, neighbor or used car dealer. Check Kelley Blue Book’s valuation tools to get an accurate appraisal of your vehicle. This number will mean a lot next to your outstanding debt.
2. Find out how much you owe
Don’t leave this number to guesswork. Knowing exactly how much you owe will help you figure out how much you want to make in the sale to come out ahead (if you can). If you’re underwater on the loan – meaning you owe more than the vehicle is worth on the open market – it complicates the selling process by making private party sales more difficult.
3. Sell to a dealership
You’ll typically get more money from a private party sale, but selling to a dealership can be easier, especially when you’ve got a lien to dispose of. Dealerships are equipped to handle his sort of bureaucratic complexity and can deal directly with the lending institution (or mechanic or tow company) to get the lienholder paid off, the title transferred to the dealership, and the cash transferred to your pocket. Never accept less than Blue Book value on a dealership sale or trade-in. You can also check out Kelley Blue Book’s Instant Cash Offer.
4. Get a quote from a dealership
If you’d rather take your chances on the high seas of private sales, at least get a quote from a dealership so that you’ll have a bottom-end number when dealing with lookee-loos and lowballers. That way, if you don’t find a buyer willing to pay a private party premium, you know you can always sell the car to the dealership. Again, you want to get as much as possible from a sale like this so that you don’t end up owing money.
5. Transfer the loan to the buyer
In some cases, the lien can be transferred directly to the buyer. The buyer will have to qualify to assume contract with the lending institution that holds the lien, and the fee for the transfer may be about 2 percent. But this is a secure way of dealing with the lien that protects all parties from fraud. Giving the buyer a title-less vehicle while the seller continues making loan payments is inadvisable. The buyer can’t get the title until the loan has been paid off.
6. Use an escrow service
The buyer can put the sale money in an escrow account, to be released to the seller once the lien has been released and the title obtained. This is a secure way to transfer funds that guarantees the buyer won’t part with his or her money until the title has been released by the lienholder. Keep in mind that some buyers may not want to use the escrow method because it has been used by fraudulent buyers to sell nonexistent vehicles. There are also fees associated with it.
7. Refinance with a local lender
If you plan on selling your vehicle locally but have a loan with an out-of-town lender (very common these days), consider refinancing with a local lender so that you can work with the lender and buyer face to face at the lender’s physical location. Don’t worry too much about the interest rate. You’ll be rid of the vehicle and the loan before a different rate will matter. You just want proximity so you can close they deal more easily.
8. Meet with the buyer and lienholder
If the lienholder is a tow company or auto repair shop, a meeting can be arranged with the buyer to get the title signed over and the lienholder’s debt satisfied (even if that means transferring the debt to the buyer). Whatever the case, the seller will need to get the title to transfer ownership or – if the buyer is assuming the debt – transfer responsibility for the debt. One of the upsides of working with a dealership is that dealers can take over a lien debt by issuing a signed letter to the seller to present to the lender.
9. Be Upfront with the Buyer
If there’s a lien on the vehicle you’re selling, make sure the buyer knows that upfront. You may lose the sale if a potential buyer finds out there’s a lien on the vehicle, but you’re more likely to lose it if you failed to mention it in the first place. Dishonesty can send an interested party packing.
