If you are attempting to purchase a vehicle that has a car lien, then the lien will need to be paid off before you can transfer title of the vehicle. A car lien is placed on a vehicle when the registered owner of the vehicle still owes money to the bank or lender that financed the vehicle. Liens are usually registered with your states' motor vehicle department or agency shortly after you take delivery of the vehicle. A car lien simply means that a vehicle cannot be legally sold and owner title transferred without first paying the obligation to the lien holder. In most cases a bank or finance company.
Where Car Liens Come From
You normally run into car lien issues when you are trying to buy a vehicle from an individual and not a car dealership. Issues concerning car liens arise simply because the seller of the vehicle has not yet made all the payments on their vehicle. But, this is not a problem that can't be easily fixed, and it shouldn't cause you too much grief.
If you're paying cash for a vehicle, then you simply find out how much the seller still owes on the vehicle and send the bank or lender a check for that amount. You then pay the seller the difference, if any, between the negotiated selling price and the amount that you sent to the bank or lender. That's it. Once your check clears, the bank will release the lien on the vehicle, and you can start the process of transferring the title into your name.
If It Has a Lien, Get a Loan
If you're applying for a loan to purchase a vehicle that has a lien, the process is even easier. You simply inform your bank or finance company of the lien, and they will take care of the rest. Just as it would occur if you were paying cash, the lien holder will receive payment in full and release the lien on the vehicle. However, there will be a new lien on the vehicle. The one placed on it by the bank or lender that finances your purchase of the vehicle. Your bank or finance company will simply become the new lien holder.
Beware of Strange Liens
In the event that there is another person or company listed as the lien holder that did not provide financing for the original purchase of the vehicle, use extreme caution. If you discover a lien holder, other than the bank or lender, then you should make sure you ask the seller about all details pertaining to the lien.
Nevertheless, even if the vehicle is encumbered by a lien holder other than the financing bank or finance company, the problem can be solved with the proceeds from your loan disbursement. You simply need to inform the bank that is providing your car loan with the necessary lien information when applying for the loan. Then, as with a bank lien holder, the bank providing your loan will submit payment to the lien holder and arrange for the title to be transferred into their name.
Car loans can generally satisfy most lien obligations - as long as the lien amount is less than the sales price of the car. If the amount of the lien placed on the vehicle is more than the selling price, you should find another vehicle to purchase.
Related Questions and Answers
Does the Government Play a Role When Buying a Car with a Lien?If you are buying a car with a lien, it will be necessary to involve the lien holder but not the government. The government simply registers and keeps track of liens. It is not a party to the process. A lien simply means that someone else is owed money on the vehicle. They have title to the car which will not be released until the loan is paid. In most cases, the lien holder will be a bank or finance company. In order to purchase a car that has a lien against it, the bank or finance company must be paid in full. You can write a check to the lien holder for the balance of the loan, and another check to the person selling the car for any amount above the loan amount. The bank will then release the title to you.
What's the Most Important thing to Know When Selling a Car with a Lien?When selling a car with a lien, it is important to verify a couple of things. Before putting the car up for sale, verify the lien amount. You want to be able to sell the car for an amount that completely pays off the lien and hopefully leaves you a little profit. At the very least, you want to cover the lien. There is nothing worse than not having the car and still paying off a loan. In addition, the lien holder will not release the title until they are paid in full. Secondly, when you find a buyer, if they pay the lien holder separately, it is important to verify they made the full payment. You are still on the hook for the loan amount until the lien is paid in full. Even if you no longer have physical custody of the vehicle.
Do Cars with Title Liens Require Insurance?In the majority of title liens, the lien holder is a leasing company or the bank that lent you the money to purchase the vehicle. They can dictate how much insurance you are required to carry in order to get the loan or lease. After all, they own the vehicle. They retain the title until the loan is paid in full. They want to protect their collateral in the event that you don't pay the loan or destroy the car. In the event that the car is damaged or destroyed, they can depend on the insurance company to pay the claim. If you drop the insurance, the lien holder will be notified and the car will be repossessed.
