There’s a Lien on the Car’s Title, Can I Trade it In?

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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.


, - October 14, 2019

If you’re ready to trade in your old car for a new one but find that there’s a lien on the title, can you go ahead and trade it in? Fortunately, having a lien on the title is common, but it can make the trade in process a little more tedious if it isn’t removed ahead of time. If you’re lost on where to start, we have three easy steps you can follow to trade in your vehicle with a lien.

Step 1: Getting a Car Loan Payoff Amount

If you determine that there’s a lien on the title, your first step is to find out what the payoff amount is. You need to request a payoff quote from your current lender; the quote should include your current loan balance, plus 10 additional days of additional interest. From there, you need to have your car appraised to determine its trade-in (actual cash) value.

When getting your vehicle’s actual cash value (ACV), we recommend visiting at least two dealerships – one of them being a franchised dealer that sells your specific make. This way, you can compare the appraisals, and determine which dealership is giving you the best offer.

Once you have the ACV, you can determine if you have equity in the car.

Step 2: Determining if There’s Equity

Equity is when your vehicle’s actual cash value is more than what you owe on the loan, and it’s easy to compute. Simply take your car’s payoff amount, and subtract it from the trade-in value.

If the amount is positive, you have equity, and can use it toward a down payment on another vehicle. If the amount is negative, you have negative equity. Before you trade in your car with negative equity, you should make sure you can pay the difference between your vehicle's ACV and what you owe on its loan.

Some lenders allow you to roll over the negative equity into the new loan, but this usually isn’t a good idea. When you roll over negative equity, you're adding it to your new loan balance, which means it's increasing your monthly payment and you have to pay interest charges on it.

In addition, it puts you in a negative equity position with your new car right off the bat, so it's never the smartest thing to do financially speaking.

Step 3: Removing the Car Lien

Once you know your equity situation, you can move forward and have the lien removed. Liens are created as soon as you take out an auto loan, and their purpose is to give the lender – or whoever is listed as the lienholder – ownership rights and the ability to repossess the vehicle if you default on the loan.

In order to remove a lien, the loan balance needs to be paid. If you're trading in a car, the dealership will take care of this for you by paying off your old lender. As soon as it's paid off, the lien is removed and you’re free to trade it in.

In some states, the lienholder may send an official release document to your state’s DMV or to you stating that the loan has been paid off and you’re the sole owner of the vehicle.

Need Help Finding a Dealer to Work With?

The bottom line is that when there’s a lien on your car, you need to have it removed before you can trade it in. However, if you’re dealing with bad credit, not all dealers are going to be willing to work with you – and this can be a struggle on its own.

That’s why CarsDirect wants to help you. With our nationwide network of dealerships, and our simple and free auto loan request form, we can connect you to a local dealer that can arrange the financing you need. Don’t wait any longer, get started right now!

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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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