You can sell a car with a lien on it, though you may have to go through some extra steps, especially if you want to get the best deal. Selling a car can be a bit of a procedure under any circumstances, but it’s a bit more complicated if your car is still under lien (which is to say, if you still owe money on it).
Here’s everything you need to know about how to sell a car you haven’t paid off.
Key Points
• Contact lender for a payoff quote, including accrued interest, to settle car loan.
• Dealership can manage loan and title transfer when selling car with a lien.
• Pay off loan before selling to ensure title is clear.
• Buyer can directly pay lender to clear lien, then transfer title.
• Escrow service secures transaction, holding funds until loan is paid and title transferred, but charges fees.
Can I Sell My Car if It Has a Lien?
Selling a car with a lien is possible, and one of the simplest ways to sell a car with a lien is to sell it to a dealership. A dealership is typically able to pay off your lienholder and handle the necessary title transfer to reflect the change of ownership.
Can you sell a car with a lien if you’re also carrying an upside down car loan? Yes, even if your outstanding loan balance is greater than the resale value of your car. To pull off this transaction, the buyer may ask that you pay the difference to eliminate your negative equity in the vehicle.
What Is a Car Lien?
A car lien is when you take out a car loan in which the lienholder, usually a bank, holds the title of your car as you pay off the amount you owe on it. This is considered a secured auto loan, since the bank may repossess your car if you fail to pay up.
In other words, a car lien gives the lienholder a safeguard in case you don’t pay. Once you do pay off your car loan, the lienholder will usually send a lien release document transferring the car title to you. A car lien functions as a security interest — it gives the lienholder the right to repossess your vehicle if you default and fail to repay the loan.
The way car loans work is a borrower buys a new or used vehicle with auto financing and agrees to repay the debt over time. Secured auto loan lenders may place a lien on your vehicle as part of the financing terms and conditions.
Keep in mind that a lien or car loan differs from a car lease. With a loan, at the end of the term, you own the car; with a lease, at the end of the term, you don’t. You’re simply paying for the privilege to drive it around.
Recommended: Determining a Car’s Value With a Salvage Title
Can You Sell a Car With a Lien on It?
As stated above, you can sell a car with a lien on it, but the active lien can make the transaction process a bit more complicated. That’s because if your car is still under lien, the lender, or lienholder, is still holding onto the title in case you fail to pay.
The loan needs to be paid in full in order for the title to be transferred. That means you’ll need to get enough money to pay for the loan entirely before you can officially sell the car to someone else.
The difficulty of this can vary depending on whether you’re hoping to sell your car to a dealership or on the private market. Selling a car to a dealership may be easier, but you’re likely to get less money for your car than you would with a private buyer.
Recommended: Why Are Loans Secured With Collateral?
5 Ways to Sell a Car With a Lien
If you have a loan balance on your car, the first thing you need to do in order to sell it is to determine the payoff quote, which isn’t the same as the balance you see reflected on your account. The payoff quote is usually higher than the account balance, because the lender has to factor in interest that’s been accrued since you last paid your auto loan; interest builds up every day.
Your payoff quote will be good for a set and limited amount of time, so be sure to pull it when you’re actually ready to sell your car, and not earlier. Additionally, you may want to revisit your payoff quote throughout the sales process to ensure your pricing is high enough to cover the amount — and remember, you’ll need to continue making your regular monthly payments in the meantime.
Here are five ways how to sell a car with a lien:
1. Sell to a Dealership
Once you have your payoff quote, things start to diverge depending on how you’re planning to sell the car. If you’re hoping to sell it to a dealership, matters might be a little simpler. Often a dealership is equipped to pay off the loan in full and handle the title transfer on its own.
However, this only works if the trade-in value of your vehicle is as much as, or higher than, the amount you owe. If you owe more than the car is worth — sometimes known as being upside down on a car loan — you’ll be required to pay the difference out of your own pocket.
2. Pay Off the Loan Before Selling
When exploring how to sell a vehicle with a lien, you may pay your car loan off early before selling it. Paying the auto loan off in full will give you full ownership of the vehicle. This can open the door to you selling your car without a lien.
3. The Buyer Pays Your Loan Off
A private buyer can pay your car loan off as part of the process of buying your car. This may not be as simple as selling to a dealership, but arranging for the buyer to pay off your car loan is another way you can sell a vehicle with a lien.
Selling to a private buyer can be a lot more lucrative than selling at the dealership. In many cases, a lienholder may accept a check directly from the buyer, especially if you’re able to go to a physical office together and explain the situation in person.
However, if you’re hoping to do more than just break even on the deal by having your buyer pay off the lien, you’ll need to arrange this with the buyer ahead of time as well, so they’ll know that some of the money is going directly to you and some is going to the lienholder.
Private party auto loans can provide consumers with financing to buy used vehicles from private sellers rather than dealerships. Banks, credit unions, or nonbank financial institutions may offer these loans.
4. Sell Through an Escrow
Another option for how to sell a car you haven’t paid off is to set up an escrow account, which will hold the buyer’s money until the loan is paid off and the title of the vehicle is transferred. An escrow account is a great way to ensure security on both sides, but setting one up does incur fees — which is another factor you and the buyer will have to negotiate on.
5. Sell at the Lender’s Office
When exploring how to sell a car with a lien, you may consider selling your vehicle to an interested buyer at the lienholder’s office. This may be the fastest way for you to pay off the auto loan and sell the vehicle.
Your lender or lienholder may have no security interest in the vehicle once you’ve repaid the auto loan debt in full. You can make arrangements at the lender’s office to satisfy the debt and sell the vehicle to an interested buyer who would become the owner of the used car. The title can be transferred into the buyer’s name once the auto loan is fully paid off.
How to Avoid Selling a Car With a Lien
While it’s possible to sell a car with a lien on it, if you’d rather not, here are some options to try:
Communicate With the Lienholder
Your lienholder is the party who is listed on the title of your car until it’s paid off, so if you’re hoping to sell it, keeping an open line of communication with them is a great first step. You may be able to work out something with the loan terms to help you pay off the car before you go through with the sale transaction.
There are different types of car titles, including the following:
• Clean title: A clean title on a vehicle suggests that the vehicle doesn’t have a history of sustaining major damage. A rebuilt car may not have a clean title if the vehicle previously sustained major damage from a crash, fire, or flood.
• Clear title: This is a title that has no lienholder on it. Having a clear title on your car means you are the sole owner of the vehicle with 100% equity in the car. It also means no other party has a security interest in your vehicle.
• Lien title: As the name implies, a lien title has the lienholder’s name on it. Your lienholder may have possession of the title until you pay off your car loan.
Refinance the Car
If paying off the loan in its current form just isn’t a possibility for you, it may be worth looking into whether or not auto refinancing could help lower your car payment. You may pay more interest over the life of the loan if you refinance with an extended term.
Refinancing a car involves taking out a new loan, with different terms, that pays off the old loan — and which often spells lower monthly payments or less overall interest for you. Of course, there are many things to consider when refinancing a vehicle, such as your creditworthiness, the impact the refinance might have on your credit score, and details about the vehicle itself.
It can be more difficult to refinance a car with high mileage than a new one with less road time.
That said, refinancing can mean big savings and may make it easier for you to pay off the loan more quickly, so it’s worth looking into at the very least. Under certain circumstances, you may even be able to refinance your vehicle through the same lender, especially if your financial situation has significantly changed.
The Takeaway
While selling a car with a lien is possible, it can be a little trickier than selling a car you’ve already paid off. The level of effort you’ll need to extend may depend on whether you’re selling to a dealership or on the private market.
If you’re seeking auto loan refinancing, SoFi is here to support you. On SoFi’s marketplace, you can shop and compare financing options for your car in minutes.
FAQ
Can you sell a car with a lien?
Yes, you can sell a car with a lien. One way you can do this is by going to a dealership and offering to sell your vehicle. Often a dealership is equipped to pay off the loan in full and handle the title transfer on its own. Selling a car with a lien may not be right for you if you have an upside down auto loan. A car loan is considered upside down or underwater if the outstanding loan balance is greater than the appraised value of the car.
What is a lien release letter?
A lien release letter is a document from a lienholder indicating that the lienholder has no current security interest in the vehicle. A lienholder may deliver a lien release letter if and when a borrower pays off the auto loan in full.
Is it illegal to sell a car with a lien on it?
No, it’s not illegal to sell a car with a lien on it if appropriate steps are taken. If you’re selling a car with a lien, either you or the buyer may need to pay off the car loan in full. Any party can pay off the car loan as part of the process of selling a car with a lien on it. The title can be transferred into the buyer’s name once the auto loan is fully paid off.
Photo credit: iStock/Tony Studio
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