You may be wondering what a lien is, especially if you are trying to sell your car.
Fortunately, you will be able to sell your car one way or another, even with a lien.
But this article will help you understand how having a lien may affect the process.
What is a car lien?
If a car has not been purchased in full, it’s understood that it’s being financed. That means the buyer has taken out a loan to pay for the car, and is likely making monthly payments until the full cost of the car is paid off.
The lien is essentially the bank’s security on the purchased car.
Having a lien on a car means that if the buyer does not make payments on the car, the bank has the right to repossess the vehicle.
If a car or truck is listed for sale with a lien mentioned, it means the car has not been paid off. So the new buyer will take responsibility for payments and the bank can still have the ability to reclaim the car if the new buyer doesn’t pay.
This can make it slightly difficult to sell a car with a lien compared to one without a lien, since many new buyers may not want to take on this added responsibility.
Can you sell a car with a lien?
Some reasons your car may have a lien include:
- You have unpaid repairs on your vehicle
- You have the vehicle currently being used for collateral on another debt or account
- It is in the process of being financed/paid off
In order to sell a vehicle with a lien, you need to figure out the pay-off amount first.
This is the total amount which you must pay to the financier in order for you to own the car title, which you need in order to sell the car.
Once this is figured out, you have two options.
The first is easier, and that is to sell the car to a dealer. The dealers deal with the financiers to help figure out the terms of the loans and get everything settled. They will provide you with documentation that the terms of the loan have been satisfied.
The second, more difficult option is to sell it on your own (privately). There are pros and cons to this approach. You have to go through a lot more trouble, but often times you will make slightly more money this way. It truly just depends on your individual situation. You need to give full disclosure of the lien status. It is easiest to sell in the town of the financier or lien holder, since this will make the entire transaction less complicated overall.
Once you make the transaction, then you go to the lender to pay off the remaining balance. You may want to think about hiring an escrow service if the financier isn’t in your area. They assume the responsibility of receipt of payments, and they keep the title until the entire purchase is finished. This benefits each person in the transaction since it is much easier to avoid fraud this way, and often the buyer and the seller split the cost of escrow services to ensure security for both parties. They help with payoff services and title transfer.
What does it mean to clear a lien on a car?
You may often hear the term “clear title” in the car buying industry. That means that the lien has been cleared from the car completely before the title is transferred.
Many people are distraught when they buy a used car and find out after the fact that it has a lien. Removing or clearing the lien from the car title before selling it will make the transaction much easier.
In terms of car ownership, a clear lien or car title means that there are no payments left outstanding on the car. Clearing the lien means that you don’t owe any more money to a lender for your car loan. This means that you can market the vehicle with a clear title, making it much easier to sell and market online, thus increasing your chances of making a sale.
How to clear a lien before selling your car
The first step to clearing a lien on your car is to obtain a copy of your credit report. On the credit report, you will find a detailed listing of all your accounts and remaining debt balances. Here, you can find the information on the lender who is the lien holder and find out exactly how much is left to pay on your account.
The simplest way to remove the lien is simply paying the amount designated on your account. The specific amount will make sure that the lien is completely gone.
However, depending on your situation, there may be other ways to remove the lien. In some cases you may be able to sell the property and pass off the lien to the next owner. But this is very complicated as it is not always clear whose name the lien is under and whose name the title is under. It is best to remove the lien before a car sale. In any case, the buyer must be informed of the lien before buying, or it can result in lawsuits or you still being responsible for the unpaid amount left.
Another way to remove the lien from property is to simply return the property into the hands of the lender or loan holder. Then, the lien goes away, because the lien is simply security on the property which is now being returned, so they can no longer charge you.
Figuring out how to pay
The lien is removed when the final monthly payment on the auto loan is made. That means you need to develop a good payment plan in order to fully pay off the loan and remove the lien. You have a couple of different options in this department.
If you know that you will be selling the car quickly after removing the lien, then it is fine to spend a bit of money to pay off the car, even if you don’t have the disposable income. Especially if you already have a committed buyer for the car, and you know that you will be getting that money back immediately. In this case, it is worth your while to pay off the lien before selling the car to avoid complication.
It is not recommended to open another line of credit to pay off an existing debt. Often times, people make the mistake of paying off their auto loan to clear the lien using a credit card or other debt. However, this can cause issues in the case that the intended buyer backs out of the transaction, and then you not have sufficient funds to pay off the car and to make up the money you have spent. This leads to the need to advertise to new potential buyers, not being able to clear the lien, and possibly only being able to obtain a lower price for your car.
If you do not have income available to pay off the car immediately, then you should come up with a savings plan. Combination of careful budgeting, cutting back and unnecessary expenses, making extra money is in things such as yard sales are selling unneeded objects, and trying to save up from prior accounts, can all make it possible for you to pay off your loan. It is better to move slowly and save as you go, than to try to pay it all off at once out of desperation to get rid of the lien.
How do you actually get rid of the lien once you have the funds?
After you have finally saved up enough to actually pay off your existing balance, it is time to actually clear the lien on the account. After this, it will be much easier for you to sell your car.
The first step is to pay the loan in full, and receive confirmation in paper or online from your lender, since proof will be necessary when you go to the DMV to remove the lien. If you cannot prove that the loan is paid in full, then you will not be able to remove the lien. If you do not receive confirmation through the mail, you can ask your lender to complete an MV-901 form to prove that the loan is paid in full. This is typically a good option since you will eventually have to fill out this form from the DMV anyways. If you only receive a letter, the DMV may have to go through additional verification procedures and take more time for the removal of the lien to be processed.
Proof that the lien is satisfied absolutely has to be an original copy.
They will not accept a photocopy. Same goes for the title certificate for the car.
In order to pay off the loan in full, it can be somewhat complicated. You have to contact the lender and truly tell them that you are trying to remove the lien, not just make a payment. Then you have to figure out the exact amount needed to pay off.
This amount can be found on your credit report for sure, but the actual amount you have to pay may be slightly higher. This is because the last month’s payments may include interest rates and lender fees which have not yet been incorporated in being included in the amount on your credit report.
The best thing to do is call the lien holder and confirm the exact amount you owe, then tell them you want to make a payment of exactly that amount, then tell them you also want to clear the lien. This should settle any issues you may run into.
The next step is to take the confirmation that the loan has been paid in full to the DMV. You will need the car title, letter from your lender, the MV-901 form, and identification. It is best to make an appointment beforehand since often waiting at the DMV can be an ordeal which takes many excruciating hours of sitting in a waiting room. There is also a $20 fee for the duplicate title which you will receive.
What if I want to sell the car without clearing the lien?
It may be the case that you do not have the funds to pay off the loan and clear the lien before you need to get the car title out of your name. In that case, here are some tips you can use to sell a car which still has the lien attached. You may not believe it, but it is not totally impossible.
- Using the dealership is the easiest way to go. You will not make as much money overall, since you have to pay the dealer after all. However, especially if you are a busy person, it can be life saving to use a dealer. If you try to rush the process or are not paying attention, something may go wrong and you can be stuck paying thousands of dollars.
- Research, research, research! Especially if you are selling on your own, it can be really difficult to sell with a lien. You need to talk up all the other positive selling points of your car! Know how much your car is worth, but also make sure you are flexible to increase your chances of selling! This route takes much more effort and a lot more time investment, however, you can often get a better price.
- An escrow service can actually be really helpful. The more complications with your sale, such as a lien and title transfer, can make it really risky for fraud to appear and if you don’t have time to comb over the details, you may not notice. With an escrow service, they are the ones held accountable for uncovering fraud, not you.