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How to Go About Selling a Car Privately With a Lien

Dena Standley | April 23, 2024

Dena Standley
Legal Expert, Paralegal
Dena Standley, BA

Dena Standley is a seasoned paralegal with more than 20 years of experience in legal research and writing, having received a certification as a Legal Assistant/Paralegal from Southern Technical College.

Edited by Hannah Locklear

Hannah Locklear
Editor at SoloSuit
Hannah Locklear, BA

Hannah Locklear is SoloSuit’s Marketing and Impact Manager. With an educational background in Linguistics, Spanish, and International Development from Brigham Young University, Hannah has also worked as a legal support specialist for several years.

Summary: Selling a car when you still have a pending loan is possible. You do not have to clear the debt with your money to sell it. You can use the buyer's money to offset the loan and remove the lender’s name from the title.

You can legally sell a car if you’re still paying on its loan, but the process is more challenging than selling a vehicle you own outright.

When you buy an automobile using a loan, the lender’s name is listed on the certificate of title as a lien holder, giving them a legal right to the car if you fail to meet your obligation to pay off the loan. Once you pay off the loan, the creditor’s name is removed.

In this article, we’ll discuss how to sell a car if the creditor’s name is still listed on the title.

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Four ways to sell a car privately with a lien

If you want to sell a car but still have a pending loan on it, there are still ways you can sell it. Here are four ways to sell a car with a lien on it:

Now, let's break down each of these options in detail.

1. Let the buyer assume and pay the lien.

After you find a buyer, you can share your situation with them and propose that they “assume the loan.” Most creditors will allow you to transfer a car loan as long as the new buyer has an acceptable credit score and is financially qualified.

This option assures the buyer they will fully own the car because they will pay the lien holder instead of sending the money to you and hoping you make the payments.

The process for transferring a car title differs between states, but generally, the buyer can send the necessary documents and instructions to the lender to transfer the title. Once this is done, the buyer will receive a new title certificate with their name on it but without the lien holder's name on it. Otherwise, the lender will send you the cleared title to sign and complete the sale.

2. Sell the car through an auto dealership

Selling your car through an auto dealership is the easiest way to clear the loan and complete a sale. Consider this method if you plan to get a new car, and trading it in is an option. The advantage of this method is that dealerships work directly with most lien holders. Therefore, the transfer of ownership will be less involved on your part.

When you approach an auto dealership, they will contact the lien holder to confirm the amount owed. After the payoff is established, the auto dealership will discuss the trade-in value vs. the amount owed. However, you may find yourself rolling negative equity into a new car if you owe more than what the dealership will offer.

3. Visit the lender's office with the buyer and pay the lien

Visiting the lender's office to complete the sale simplifies the process and produces results quickly. However, several variables must work together, including finding the cash to pay off the remaining balance. Paying off a balance early can save you a substantial sum in interest, depending on how much is owed, the interest rate you received and how early in the loan you pay it off.

Once you have booked an appointment with the lien holder, you or the buyer will transfer the remaining loan balance to the lender. After confirming receivership, the lien holder should immediately transfer ownership to the buyer, who will receive an updated certificate of title. Let's consider an example.

Example: Mike bought a car four years ago for $12,000 and had paid off $4,000, but he now wants to buy a truck. He advertises online for a buyer and reveals that the car has a lien holder named. Bob likes the car and is willing to buy it despite the lien. During the negotiation process, Mike proposes they visit Discover offices to complete the sale. Kate agrees and secures a cashier’s check before meeting Mike at the Discover offices. The attending lady at Discover offices confirms the payment and transfers the ownership of the care to Kate.


4. Use an escrow account

You or the buyer may prefer to conduct the sale via anescrow account because it offers more security. The buyer will deposit the money in the account, the lien holder confirms the money has been sent, and then they will process the papers and transfer ownership. Afterward, escrow releases the money to the lender when the buyer gives the go-ahead. As part of the transaction, you and the buyer must agree on who will cover the service fee for using escrow. Usually, the cost is split between the parties.

FAQs on selling a car with a lien

Let's take a look at some frequently asked questions on selling a car with a lien. Hopefully, but the end of this section, you'll know everything there is to know about the topic.

How do you receive a title after you pay off your loan?

After you pay off your car loan, you can contact the DMV to ensure the lien has been released and they will send you the title to the car within a few weeks.

What are the implications of prepayment penalty fee while selling a car with a lien?

Selling a car with lien may incur prepayment penalty fees. On average, prepayment penalty fees are about 2% of the outstanding balance. Let's consider an example.

Judy wants to sell her car, but she still owes $5,000 on it. She contacts her lender to ask about selling the car and learns that she will owe a $100 prepayment penalty fee, which is 2% of her outstanding balance on the car.

Some of the implications of prepayment penalty fees when selling a car with a lien include increased selling costs, decreased potential profit, and complications in the sale process.

How can you ensure that the dealership isn't adding your outstanding balance to a new loan?

If you're trading in a car with an existing loan in exchange for another car with a new loan, you can ensure that the outstanding balance isn't added to your new loan by asking for a breakdown of all costs when discussing the financing terms.

You may have negative equity on your loan if the trade-in value of your old car is less than the existing loan's payoff amount. Negative equity can increase your borrowing sum and lead to higher monthly payments and more interest paid throughout the loan's duration.

If you owe more on your current car than its worth (negative equity), you might consider taking out a separate, second car loan for the new vehicle. This is typically feasible if the total of your car payments, for both the previous and new loan, doesn't exceed 15% of your income. You may also trade in your current car and roll the remaining balance into the new car loan. This means the unpaid amount of your current loan gets added to the loan of the new car.

What are the potential pitfalls of trading in your car while there's still a lien on it?

One of the biggest pitfalls of trading in your car with a lien on it is that the deficit will be rolled over to your new car payment. So, in other words, your new loan will include the amount you owed on the old loan, and your monthly car payment will increase. Higher monthly payments could lead to higher interest in the long run.

SoloSuit can help if you're dealing with debt

Selling your car because of debt problems is all too common. While dealing with collectors and paying off your debt can be challenging, resources like SoloSuit can help make the process more simple. At SoloSuit, we can help you stop collection calls, respond to a Summons for debt, and settle debt for less than you owe. Explore our services today and manage your debt situation.

To learn more about how to settle an auto loan debt, check out this video:

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