What happens if you buy a car with a lien?
When you buy a car with a lien on the title, depending on the circumstances, the seller could pay off the loan, you could pay off the loan, or you may try to take over the loan. Before buying a car with a lien, do your research, weigh your options carefully, and be ready to get the transaction in writing for all parties involved. If you plan to use an escrow service, verify that it's legitimate first by checking with regulatory authorities and industry associations such as the Consumer Financial Protection Bureau.
Explore Progressive Answers' auto editorial guidelines to find out why you can trust the car insurance information you find here.
Can you buy a car with a lien on the title?
It's possible in a private car sale to buy a car with a lien on it. If a car has a lien on it, it means the owner hasn't paid off their car loan yet. The lienholder has a legal right to the vehicle, so you'll need to find out which financial institution, individual, or other third party holds the lien.
How to buy a car with a lien
First, get the car's vehicle identification number (VIN), and use it to check the state department of motor vehicles (DMV) records to find out who holds the title. These records are typically searchable online. The record should indicate whether there's a lien on the car, and if so, the lienholder's name. If you're planning to take out a car loan for the vehicle, another option is to ask your lender to do a lien search with the VIN. You may need to pay a small fee for this service.
Once you know who the lienholder is, there are a few ways to proceed with buying a car with a lien:
The seller pays off the car loan
You could request that the seller pays off their loan before selling you the car, making the title transfer process easier. Or the seller could refinance the car by taking out a personal loan. These scenarios are less risky to the buyer since they require the seller to gain full ownership of the car before selling it to you.
You pay off the car loan directly
You can opt to pay off the remaining loan amount as part of the terms of the car sale. In this case, you'd pay the loan balance directly to the lender, removing the lien. The lender would then transfer the car title to you. Make sure this arrangement is well documented and agreed to by all parties since you'll be paying off the loan before the car is transferred to your name.
You take over the car loan
You may be able to take over the loan from the seller, but this can be complicated. Some lenders don't allow auto loan transfers. If they do allow it, the lender will need to check your credit history and get other information to ensure you meet their loan qualifications. Ask about any fees you'll need to pay.
How do you use an escrow service for buying a car with a lien?
Using an escrow service can be for other purchases besides a home, and it's primarily a protection measure. According to Motor Biscuit, before the title for a car is transferred, the buyer puts the money into an escrow account instead of paying the seller directly. This allows the money to be protected until the paperwork is signed over.
Can you insure a car with a lien?
Yes. You still need to purchase at least your state's minimum auto insurance when buying a car through a private sale, even if the seller doesn't ask you for proof of insurance. If you take over the car loan, the lender will likely require additional car insurance coverages such as comprehensive coverage and collision coverage to protect their investment.
Having a lien on your car doesn't automatically increase your insurance rate or change your ability to qualify for insurance.
How to get car insurance
Call a rep
Talk with a licensed representative who can guide you through the process.
Call 1-866-749-7436
Quote car insurance online or give us a call
Learn more about car insurance policies.
