What is a lien on a car? When a loan is taken out on a new or used car, the lender creates a lien — or legal right to possession of the car until the loan is paid in full. So, if the borrower defaults on the loan, the lender can legally repossess the car. Whether you decide to buy or sell a car with a lien, the process can get complicated. Read on to learn more about liens, how to check for one, and how they affect car buying and selling.
If you’re buying from a dealership — be it a new or used car — you probably won’t have any trouble with a lien. New cars don’t have previous owners, thus no liens, and the title for a used car is transferred to the dealer selling it on their lot. They would’ve taken care of any necessary paperwork as well. It gets trickier when you buy from a private seller. In order to have the title transferred to you, they’ll need to first pay off the loan. Here are a few ways to check for a lien before moving forward:
Although information on titles varies depending on the state, you can generally find out if a title has a lien by reviewing the title details.
Ask the seller to show you a copy of the lien release document. This will help prove that they legally own the car.
You may be able to use the DMV website (or visit the DMV) to check for any liens associated with the vehicle identification number (VIN).
Go through CARFAX® to get a vehicle history report. This will show any open liens, as well as information about any previous accidents. (This typically costs money.)
What Happens if There is a Lien on My Car?
If You’re Buying: If there’s a lien on the car you’re interested in, the seller will need to get the loan discharged (i.e. paid off). Don’t complete the purchase until the seller has repaid the loan. If they can’t pay the loan in full, they may be able to refinance the loan as a personal loan or on a line credit that doesn’t place the car up for collateral. You can also negotiate with the seller to pay the lender directly, and deduct that amount from the original asking price.
If You’re Selling: If you wish to sell a car with a lien, the easiest way is to sell through a dealership. They’ll work directly with the lien holder to repay the loan by using the proceeds from the car’s sale or by integrating the outstanding balance into your new or used car loan (if you’re buying another car). This approach will also save St. Charles buyers the hassle of having to work around the lien.
Learn More With Green Light Auto Credit
Now that you know the answer to the question, “What is a lien title,” you can shop for a new or used car more confidently. Contact us at Green Light Auto Credit to learn more about how car financing works, as well as other things to be on the lookout for while you shop around St. Louis and Florissant, such as branded titles.