Selling a Car with a Lien: An Expert Guide for a Quick and Safe Deal

A car loan is a feasible solution when buying a vehicle, but it often becomes a barrier once you’re ready to sell your auto. Whether you’re looking to scrap the automobile you no longer need for a top dollar or receive a fair return on your old vehicle’s residual value from a private buyer, there are several aspects you should consider before selling a car with a lien on it. Read on to explore car liens, how they affect your auto sale, and how to get a clear title for the vehicle you no longer need.

What Are Car Liens and How Do They Affect Sales?

If you purchase your vehicle with a loan or some other kind of financing, the name of the lending party is reflected on the car title as a lienholder. The latter holds a part ownership of your auto until you repay your debt in full. In other terms, the lien is collateral that gives the lender the upper hand in the legal battle if you default on your loan payments.

When transferring ownership of a vehicle with a title lien, many auto owners get overwhelmed with two questions.

Is it legal to sell a car with a lien?

No, selling a vehicle with a title lien without the lender’s approval is illegal, as the property isn’t entirely yours as long as the debt isn’t fully paid off.

Should I get the lien off the ownership certificate before moving forward with the transaction?

Yes, parting with your car is usually much simpler and smoother if the ownership certificate is lien-free before you start.

However, there’s more to it than that.

Common Reasons for Liens on Vehicles

Getting a car lien is a practical solution in several scenarios, including:

• Financing an auto purchase. As has been mentioned, if you decide to finance your vehicle through a loan, the lender places the lien on the car to ensure the loan gets paid back.
• Mechanic’s services. It’s a common practice for mechanics or other service providers to place a lien upon the vehicle if the owner can’t redeem the services rendered.
• Unpaid taxes. Governmental agencies have the authority to place a lien on personal property, including automobiles, to redeem the unpaid taxes by seizing and selling the automobile if needed.

Steps to Selling a Car with a Lien

The lienholder has a financial interest in collateral for as long as the debt isn’t paid back in full. Hence, if you’re wondering how to sell a car with a lien, focus on three critical steps described below: reaching out to your lender, specifying the outstanding debt, and preparing the documents needed to pay off the lien or proceed with some other course of action you’ve opted for.

Contact Your Lender

Before anything else, reach out to your lender and clarify all the details of your vehicle’s current lien status. Remember that whilst you repay the loan on your car, the lender holds the lien on it. Until the debt is fully repaid, the lienholder has a direct financial interest in the property. That is, you gain full ownership over the vehicle only after the lien has been released. Until then, you must receive the lender’s permission to sell.

Determine the Payoff Amount

Contacting your lender is also critical for determining the loan’s payoff amount. This information lets you know how much debt needs to be paid off to get the lien release.

Note that the loan payoff amount might differ from the outstanding debt specified on your borrowing statement due to the accumulated interest. In some cases, the borrower might also be charged the early payoff fees for repaying the debt prematurely. These extra expenses will increase the overall cost of your loan. When negotiating the payoff sum with your lender, ask them about specific stipulations or recommendations for vending the vehicle.

Prepare Required Documents

The lienholder might recommend selling or trading in your car at a dealership. Alternatively, the lender can inform you about the option of having a private buyer pay off the loan. Depending on the course of action taken, you’ll have to prepare different sets of documents.

Still, no matter how you decide to part with your vehicle, you’ll likely need to hand in the following paperwork:

• Vehicle Identification Number (VIN). The 17-character code serves as a unique identifier for your car. It displays the auto’s registration, manufacturer details, insurance coverage, and more.
• Warranty paperwork. This is the manufacturer’s guarantee to cover expenses for any fault with the vehicle’s performance under negotiated conditions during a set time frame.
• Service and maintenance records. The document includes dated records of all repair and maintenance work done to your car.
• Automobile title. This legal document establishes the legal auto owner. If your vehicle has a lien status, it’s reflected on the automobile ownership certificate.

Selling a Car with a Lien to Junkyards or Scrap Yards

If you’ve googled inquiries like “Can I junk a car with a lien on it”, you probably have already discovered that scrapping a vehicle with a lien title isn’t a one-step procedure. It’s even more than that: vending an auto the ownership of which is not yours entirely might raise legitimate concerns.

So, what’s the best approach to selling a car with a lien to junkyards or scrap yards and what steps should you take to make the process smooth?

Can You Scrap a Car with a Title Loan?

If your car has a title loan, scrapping it is only possible if the lien is resolved. Since the lender holds a financial claim on the auto, you must first pay off the remaining debt or negotiate with the lienholder for approval to proceed with scrapping.

Reputable junkyards check for liens on vehicles before accepting them for scrap. This precaution ensures compliance with legal requirements and avoids issues, such as handling stolen property or disputed ownership.

Alternatively, you may sell the car to a private buyer, who can cover the lien balance as part of the transaction. This approach allows you to resolve the lien and move forward with disposal or other plans. However, specific terms depend on your lender and individual circumstances.

Steps to Check Lien Status Before Junking

Before junking a car, it’s crucial to verify its lien status to avoid complications. Start by reviewing the title, as it will indicate whether there’s an active lien. If a lienholder is listed, contact them to confirm the loan status and request a lien release if the debt is repaid. If not, inquire about the payoff amount required to clear the title.

Once the dispute is resolved, ensure your Department of Motor Vehicles has updated the title and it reflects its lien-free or junk status. As we have mentioned, junkyards will typically require proof that the lien has been addressed before accepting the vehicle. Always work with reputable junkyards and keep your paperwork in place to stay on the safe side.

How to Remove a Lien from a Car Title

You can remove a lien from a car title by repaying the debt in full. While you can do that yourself, you can also negotiate an alternative with your lender and engage a private buyer in the process. We’ll explain everything in detail below.

Pay off the Loan Directly

Paying the loan off directly allows you to claim full ownership of your vehicle. Once you receive a lien release on your car, you have the legal right to sell or trade it. As previously mentioned, you should find out how much you owe to your lending party first and make payments to cover the debt in full.

Work with the Buyer to Pay the Lien

As an option, ask your lender about possible ways to sell the car with the lien status still on it. The lienholder might suggest contacting the dealership or vending the vehicle privately with the prospective buyer covering the lien for you. Either of the two methods is feasible to satisfy the lien terms while providing the remaining funds to the vendor, i.e., you.

Obtain a Lien Release and Update Your Title

After the debt on your vehicle is repaid in full, you receive a lien release. With this document, the lienholder gives up their claim on your auto. In most cases, after this, you will need to contact the local Department of Motor Vehicles to inform them about the need to update the car’s title. You can always use the DMV’s online database to confirm your vehicle’s status, if applicable.

What Happens If You Buy or Sell a Car with an Existing Lien?

Remember that if you buy a car with a lien, you must provide the remaining debt sum to the lender. Before signing up for this deal, do your research. Check the vehicle’s maintenance report, VIN, warranty paperwork, and, most importantly, its title and the specified payoff amount. The latter is what you’ll have to pay back to the lender to obtain full ownership of the auto.

If you decide to sell a car with an existing lien, start by negotiating the terms and conditions of the transaction with the lienholder. Consider the option to pass your vehicle on to a dealership or a private buyer. Once all stipulations with the lien are settled, you can proceed with finalizing the sale of your automobile.