How to sell a car with a lien

Written by: Clint Proctor
• Updated •4 min read
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In a Nutshell

The process of selling a car with a lien varies depending on how you plan to sell it. It can be less of a hassle at a dealership, but you’ll probably get more cash from a private buyer. But if you sell your car privately, you’ll need to contact your lienholder to determine if the buyer can pay off your remaining loan amount — and you’ll need to find a buyer who’s comfortable with that plan.
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Selling a car with a lien is possible. But if you plan to sell your car privately, you’ll have to do more work.

A car lien gives the lienholder — typically your auto loan lender — legal claim over your car until your loan has been paid off. This means that you typically won’t be able to sell your car and transfer ownership until the lien has been satisfied.

Let’s take a deeper look at how to sell a car with a lien privately or trade in your vehicle at the dealership.

Contact the lienholder

If you’re thinking about selling your car, contacting your lienholder should be the first step you take. Ask your lienholder to give you the exact amount needed to pay off your loan so you can determine how much money you need to make in the sale.

If you plan to sell your car to a private party, ask your lender about the process you should follow to pay off your loan and transfer the title to the buyer.

Trading in or selling a car with a lien at a dealership

If you plan to trade in your vehicle at a car dealership, the dealership might pay off your loan as part of the trade-in. In this case, the dealer would likely handle the title transfer.

While trading in or selling your car at a dealership may be easier than selling it privately, you typically get less money for your car. Since a dealership wants to make a profit on the future sale of your car, it usually won’t give you as much for your vehicle as a private buyer who’s likely just looking for transportation.

Keep in mind that if you’re upside down on your loan and owe more than the trade-in value of your car, you’ll still have to pay the difference between your loan balance and what the dealer gives you for your trade-in.

If the dealership offers to pay off the total amount you owe on your loan, confirm how it’s paying off the loan. If you’re trading in your car, you’ll want to make sure it isn’t just adding your outstanding balance to your new loan, which will increase your monthly payment.

A car trade-in with negative equity: Your options

Selling a car with a lien to a private party

Selling a car with a lien to an individual is a different process and may require some extra steps. If you sell privately, you’ll need to either pay off your loan before you sell the car or — if your lienholder allows it — find someone who’s comfortable paying off your auto loan for you.

Selling your car privately may take more time, but you’ll likely get more money for your car than if you trade it in or sell it to a dealership. Here are a couple of options you may have for selling your car privately and transferring the title.

Pay off your loan before selling

If you’re able to pay off your loan balance, your lender will typically send a lien release document (depending on the state) to the state transportation agency so that the car title can be updated and transferred to you.

Once you receive the title, you can then transfer it to the person who buys your car.

The buyer pays off your loan

If you can’t afford to pay off your loan, your lienholder may allow a check from the buyer for the payoff amount in return for the car title. To simplify the process, you may want to go to your lender’s office with the buyer to complete the sale.

If going to the lender’s office isn’t possible, another option may be to set up an escrow account where the buyer’s money is held until they receive the title. The escrow service can handle the paperwork and make sure that all conditions of the sale have been met before the buyer’s funds are released to you.

While using an escrow account can provide the buyer peace of mind, you’ll need to pay the escrow company a fee for its services. You or the buyer could choose to cover the fee individually, or you might agree to split the cost evenly.

What’s next?

Selling a car with a lien can be complicated, especially if you plan to sell to a private buyer. Be sure to talk to your lienholder first to see if it’s allowed under your contract, and if so, if there’s a preferred process for completing the sale and title transfer.

If you’re struggling to find a private buyer willing to buy a car with a lien, you might want to postpone the sale until you can pay off your car loan.

Similarly, if you’re having trouble selling or trading in your car at a dealership because you owe more than your car is worth, you might want to wait until you can build some equity in your car by making extra payments or paying more than the amount due each month. But be sure to find out first if your lender charges a prepayment penalty fee.

For more car-selling tips, check out our complete guide to selling a car.

About the author: Clint Proctor is a freelance writer and founder of WalletWiseGuy.com, where he writes about how students and millennials can win with money. When he’s away from his keyboard, he enjoys drinking coffee, traveling, obse… Read more.