How to sell a car privately with a lien

It is not uncommon for car owners to sell or trade-in their vehicle while still having a balance on their auto loan. An outstanding lien may make the sale more laborious, but it is possible even when selling privately. It is important to know that the lien payoff process will impact the timing of the transaction and requires some extra legwork to complete. The process can also vary depending on your lender, your loan agreement, buyer’s payment method and other factors. As long as you have the right information, documentation and patience you can be on your way to paying off your loan and transferring your title. Here is a quick guide to make the process as quick and simple as possible.

Contact the lien holder:

The first step you should take is to contact your lien holder. Many financial institutions have their own preferred process when handling the payout and title transfer. Talking to an agent at the bank will clarify the steps for your specific situation and contract. It will also give you the opportunity to request a payoff letter and any other documentation needed to complete the sale.

Pay off the lien before selling:

One option is to pay off the outstanding balance yourself before selling the car. If you have a low balance or are able to pay off the amount owed this can simplify the transaction. Your lender will typically send you or the state’s DMV a lien release to update the title and transfer it to you. Once the title is in your name you are free to sign and transfer it to your buyer.

The buyer pays the lien:

It is very important to be upfront about your lien with the buyer. This will set the expectation for both parties on the transaction process and could change how the buyer will want to pay for the vehicle. If you plan to use the proceeds from the sale to pay off your balance, then the first step is to know how the buyer plans to pay for the vehicle:

Buyer wants to pay with cash or check - If your lien holder has a local, physical office you can accompany the buyer and meet with a local agent to finalize the transaction. Most lenders will accept direct payment from the buyer and will provide supporting documentation of the sale. They will also facilitate the title transfer.

If your lien holder is not local or does not have a physical office, schedule a time with the buyer to call an agent at the bank to go over the process. Be sure to provide all available documentation including the payoff letter and the bill of sale. You as the seller will be responsible to sign and ship the Title to the buyer once the lien holder releases it. Because the buyer is trusting you to complete this after the money is exchanged, it is important to ease the buyer’s concerns with transparency and honesty throughout the process. Another option to consider is using a third-party escrow service. This will help protect both parties in the transaction.        

Buyer wants to finance - When the buyer is financing the vehicle, they will first need to get approval from their lender that the car meets their criteria. This can be based on year, mileage and borrowing amount. Once this is submitted and approved by the buyer’s lender, your lender will handle the transaction. They will transfer the funds and title between each other. Once complete they will provide instructions on when and how to exchange the vehicle along with any documentation.

Selling a car under lien is doable and there are options when it comes to how you transact and interact with the buyer. It is always best practice to be upfront about liens with the buyer early so that both parties can plan ahead and have an enjoyable experience. With this information and preparation, you can successfully sell your vehicle quickly and without setbacks.

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