How Does a Car Lien Work?

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Megan Foukes is a recent graduate from Indiana University who graduated with a bachelor’s in journalism. Megan works as a content writer for Auto Credit Express and contributes to several automotive and finance blogs.


, - January 23, 2018

Once a borrower is approved for an auto loan, the term “lien” will be thrown around. It may sound familiar, but what exactly is a lien?

Car Lien Basics

A lien is the right to ownership of a car until the loan is paid off. It’s essentially an insurance policy for the lender – if the borrower defaults, the lienholder can repossess the vehicle and sell it to pay off the loan balance.

The lienholder is listed on (and often holds) the title. It can be any third-party entity, like a bank, company, or individual. The only way to remove a lien is to pay the loan off.

Selling a Vehicle with a Lien

If a borrower decides they want to sell the vehicle with a lien on it, they first need to determine the payoff amount. The best way to determine the payoff amount is to ask the lender to calculate it.

After that, there are three options to choose from in order to sell the vehicle:

  • Paying off the balance – The easiest way to remove the lien is paying off the remaining balance on the loan. Paying off the balance will also make it easier to sell the vehicle once the lien is removed.
  • Trading it in to a dealer – If paying off the loan isn’t possible, another option is to trade in the vehicle to a dealer you plan on buying your next car from. When a borrower trades their car in to a dealer, the dealer will pay the current balance on the loan. This removes the lien and the title can be signed over to the dealer. If the borrower has any negative equity, they can roll it over onto the next loan or pay the difference out of pocket.
  • Selling to a private party – Although this option takes more effort, the borrower could make more money. If there’s equity in the vehicle, all the borrower has to do is pay off the loan to receive either the title or a release of lien letter. If there’s negative equity involved, the borrower will need to come up with the difference between the selling price and the loan balance before the lender will issue a release of lien letter that should be attached to the title.

Bottom Line

If you find yourself in need of another vehicle, but aren’t sure where to start, CarsDirect wants to help. We have an extensive network of special finance dealers who can help people in different credit situations. Let us connect you with a local dealership. Get started by filling out our auto loan request form today.

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Megan Foukes is a recent graduate from Indiana University who graduated with a bachelor’s in journalism. Megan works as a content writer for Auto Credit Express and contributes to several automotive and finance blogs.


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