What Is a Lien on a Car? The Guide Buy & Sell with a Lien

What if you decide to buy a used vehicle that you like, but hear that it is under lien? Naturally, you will wonder what is a lien on a car. Well, that means someone owns that car, but the lienholder has a legal right to it until the owner pays the loan in full. Legally, it is possible to purchase that vehicle, but there is a bit more paperwork to finish before sealing the deal.

However, don’t start negotiations before discovering the lien status of a private seller. That way, you will get the insurance that a seller has the legal right to transfer ownership. Let’s see what to do when you find yourself in such a situation.

What Is the Difference Between a Loan, Mortgage, and Lien?

What Is The Difference Between A Loan, Mortgage, And Lien

  • Loan – A loan is an open-ended credit up to a precisely defined limit or one-time amount of money given by financial institutions, corporations, or governments.
  • Mortgage – Well-known as ‘liens against property,’ it is one of the types of loans available when someone wants to purchase real property. The borrower needs to pay a fixed-rate mortgage and the interest rate. Fortunately, that rate is the same throughout the loan period. Since the mortgage is a form of incorporeal right, the lender can foreclose when the borrower stops paying it.
  • Lien – It is not connected with money directly. In fact, it is a record put on the property someone buys. The lien provides the right on ownership of the property (often car) to the holder if the owner can’t pay the debt in full.

How Do Car Liens Work?

The point of car liens is that they provide insurance to creditors if a client can’t complete the payment. In other words, the loan provider owns the title of the car until the new owner pays off the loan ultimately.

Sometimes, a debt collector puts car liens on a car when the debtor fails to pay s debt. In that case, he or she gets the money first right away after selling the vehicle.

For example, if someone owes $10,000, but the car is sold for $20,000, half of the money goes to a debt collector since he or she has a lien at that value against the vehicle. The rest of the money goes to the owner.

However, if the owner hasn’t paid the loan, the finance company or bank has the first lien against the car, and only then the debt collector can take his or her money.

From that moment, the lender possesses the vehicle, which will impact the owner’s credit history notably. On the other hand, a lien will involve a lower interest rate on loan, providing the car owner a possibility to rebuild his or her bad credit record. Once the loan is entirely paid off, the owner gets a title on the vehicle.

How to Sell a Car with a Lien on It?

Now, if you want to sell a car, but you have a lien on the title of the vehicle, you need to pay the loan before that fully. Then, it is necessary to contact the holder and make the transfer of ownership.

If you can’t finish the payment, you can sell the car, but the holder has a right to collect the received money first. In other words, the buyer needs to write two checks. The first one is for the finance company or bank, and the second goes to you.

Don’t forget that you need to pay loan administration fees, sales taxes, and DMV charges, as well. The process is finished once the holder transfers the title to the new owner.

How to Buy a Car with a Lien on It?

How To Buy A Car With A Lien On It

You don’t need to worry if the car you want to buy has a lien on it. In fact, you can purchase it legally. However, never do that without visiting the lienholder to get approval. That way, you will avoid any possible disputes that may occur when taking ownership of the vehicle.

In general, this option is far from ideal because you need to do a lot of paperwork. Plus, there probably will be no much bargaining, and you can’t get the car title right away. In most cases, you should miss such a deal because:

  • It is not a recommended solution for you if you are in urgent need of a vehicle since the procedure can take a few weeks.
  • Due to numerous negotiations, this option will take a significant amount of time, especially if the seller requires cash rather than paying the bank debt first.
  • It is impossible to insure the car without the title because the written agreement between the seller and buyer is not proof of ownership. To get it, you will need the approval of the lienholder.
  • There are no transferred warranties, which means that you need to spend additional money on maintenance and necessary repairs.
  • Buying the car on the lower price in exchange for taking over their outstanding loan poses high financial risks.

If you still decide to buy that car, you should take care of the following:

  • Car history report – It is the document giving you crucial information about the condition of the vehicle.
  • Car title – Request to take a look at it since this document shows the information about ownership. Plus, always check whether the VIN on the title matches the one on the dashboard.
  • Loan holder – Contact the credit lender to find out whether the bank has approved the sale and the way the seller plan to clear the debt.
  • Written agreement – Never buy the car before all parties sign a contract. It will be proof that the bank allowed the seller, who has an outstanding loan, to sell the vehicle.

Also, this document will confirm that all three parties have agreed about the way of payment. It is a confirmation that the seller is responsible for paying the loan by a specified date.


Whether you want to buy or sell a car with a lien on it, you need to prepare yourself for a bunch of paperwork. Plus, purchasing a vehicle with a lien is not the best option you can get, especially when the seller can’t pay the rest of the debt to the loan holder. However, the procedure is possible but requires a lot of carefulness and spent time. I wish you luck!