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Should You Buy a Car With a Title Lien?

Stephen Fogel
March 6, 2019

If you’re looking for a used car and talking with private sellers, you might run into one with a title lien. But what does that mean?

Purchasing a car with a title lien requires a bit more care and work than one without a title lien, but it can be done without too much aggravation — if you know what you’re doing. 

What is a title lien?

A title lien is a form of protection for someone, other than the owner, who has a financial interest in the vehicle in question. In most cases, this is the bank, credit union or other outfit that funded the loan used to buy the car. The title lien is a way to assure that the lender will be paid the remaining value of the loan.

In other words, the car is collateral for the loan. The lien holder owns the car until it is paid off, has the right to repossess the car if necessary, and can then sell it to satisfy the unpaid part of the loan. 

This lien will be clearly stated on the vehicle’s title, and it must be paid off before the title can be transferred to you, the buyer of that vehicle. 

» MORE: Should you buy a car with a salvage title?

How to know if there’s a title lien

It’s essential that you know whether there’s a title lien on a car you plan to buy. If you’re not careful, you could land yourself in legal trouble, and be responsible for any remaining loan payments. Here’s how to know if that car has a title lien on it:

Ask the seller to show you the car’s title. If there is a lien holder, it should be shown clearly on the title. Do not accept a photocopy of the title, which can be easily altered. Insist on seeing the original document. If the seller won’t show it to you, it’s a big red flag. Cross that car off your list. 

Check the vehicle’s VIN for any title liens. While looking at the car, write down its VIN, which will be located on a dashboard plate at the base of the windshield. It should also be listed on the car’s title and registration documents. Once you have the VIN, there are several ways you can check for any potential title liens. Some of them may charge a fee, but it’s well worth it:

  • A vehicle history report from Carfax or other similar services
  • The department of motor vehicles (DMV) website for the state where the car is titled
  • Your bank or credit union, if you are planning to get a car loan to buy the car

While you’re at it, be sure to ask to see the seller’s ID, to verify that he or she is the actual owner listed on the car’s title. Also, be sure that the VIN on the title matches the VIN plate on the car. 

» MORE: How to determine a car's value

How to buy a car with a title lien

If you want to go ahead and buy a car with a title lien on it, here are a few strategies to consider:

1. Have the seller pay off the loan. This is the best way to deal with a title lien. The seller pays it off, the lender removes its lien from the title, and the seller is free to sell you the car with a clear title. If the seller doesn’t have the funds to pay off the loan, he or she may be able to refinance that amount through a personal loan, or some other means that separates the debt (and the title lien) from the vehicle.

Don’t go through with the sale until you see a clear title that shows only the seller’s name on it. In some states, the lender may be able to transfer the title over to you once the lien is paid off. If not, you may have to wait until a clear title is issued by the DMV.

2. You pay off the loan as part of the deal. What if the seller can’t afford to pay off the balance of the loan or get the debt refinanced? If you really want the car, you may have to pay off the loan. You would then deduct this amount from whatever you have agreed to pay the seller for the car. To protect yourself, be sure to have a signed agreement that spells out the terms of the sale. It is preferable that you pay the lien holder directly and have the paperwork processed while you wait. Never give cash to the seller for this purpose.

3. You assume the loan. This might be a good option if neither of you can afford to pay off the loan. The loan is rewritten in your name, and you become responsible for making the remaining payments. This amount is deducted from the agreed-upon purchase price, and the seller receives what remains. This clears the title lien from the seller’s title, and adds it onto yours after the transfer.

If you are uncomfortable with any part of the title lien process, you can use an escrow service to act as the middleman in the transaction. For a fee (which can be split between you and the seller), the escrow service will hold the funds, manage the loan payoff, make sure that the title gets transferred, and pay the seller.

A few final tips

Before buying a car with a title lien, familiarize yourself with your state’s regulations on the matter. If the vehicle you’re buying is from a different state, know that state’s regulations, as well. The DMV websites of each state can provide you with this information. 

Always get a pre-purchase inspection any time you're considering buying a car from a private seller. For a relatively low price, you can make sure the vehicle isn't hiding any serious faults.

Remember to get a bill of sale from the seller, as well as all necessary lien-related documents, and anything else that your state requires. This should make it as easy as possible to title and register the vehicle, with no remaining financial obligation.

Stephen Fogel

About the Author

Stephen has been an automotive enthusiast since childhood, owning some of his vehicles for as long as 40 years, and has raced open-wheel formula cars. He follows and writes about the global automotive industry, with an eye on the latest vehicle technologies.

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