What happens if you buy a car with a lien?

Before buying a car with a lien on the title, do your research, weigh your options carefully, and be ready to communicate with all the parties involved in the transaction. 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. If you plan to use an escrow service, verify that it's legitimate first.

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Can you buy a car with a lien on the title?

It's possible to buy a car in a private sale that has a lien on it, meaning the owner hasn't paid off the car loan yet. The lienholder has the legal right to the vehicle and is often a financial institution, but could be an individual or third party. One potential advantage of buying a car with a lien on the title is that the seller may be more willing to negotiate the price. Do your research first, though. Along with a vehicle history report, find out the car's value and make sure the title can be transferred to you.

Once you have the vehicle identification number (VIN), you can check the state Department of Motor Vehicles (DMV) records to find out who holds the title. These records tend to be 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.

How to buy a car with a lien

The seller pays off the loan

The seller may be able to pay off the 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 require the seller to gain full ownership before selling to you.

You pay off the loan directly

If you decide to pay off the remaining loan amount, you'll need to coordinate with the seller and the lienholder. In this case, you'd go to the lender and pay the loan balance directly, removing the lien. The lender would then transfer the car title to you.

You take over the 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. The lender will need to run a credit report and check your qualifications to start for those who do. Ask about any fees required.

Do you need auto insurance for a car with a lien?

Yes. You still need to purchase auto insurance when buying a car through a private sale, even if the seller doesn't ask you for proof of insurance. Depending on how you and the seller handle the loan, the lender might require specific car insurance coverages such as comprehensive and collision to protect their investment.

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