How to Buy a Vehicle With Outstanding Finance

Some states do not allow title transfers while a lien holder exists on the vehicle title. Whether you live in a state that does or not, make sure the current loan is paid off before you pay and take possession of the vehicle. Even if your state allows these types of transfers, the bank's collateral, or vehicle, can be repossessed from you if the original borrower does not pay.

Motor Vehicle Requirements

Call your state's motor vehicle department to determine what paperwork is necessary to transfer vehicle ownership. Ask specifically about vehicle titles with recorded liens. Most motor vehicle departments require an original lien release, which is a bank statement proving the loan has been paid in full. Some states, such as New York, allow title transfers despite outstanding finance, although your new title will reflect the old lien information. Most buyers steer clear from titles with a lien recorded, making it difficult to sell in the future if you can't provide a clear title.

Lien and Title Release

Hopefully the seller is using your purchase money to pay off the loan. In title holding states, the seller cannot even obtain the title to release to you until the loan is paid off. Otherwise, the bank provides the official release of lien to the original borrower, who then gives it to you to supplement your title and transfer paperwork. Do not accept a copy of the release, only the signed, original copy is accepted by motor vehicle departments. The seller should also provide you with a properly filled out and signed title.

Paying Off the Loan

Protect your funds by working with the buyer to make payment towards the loan instead of directly to the buyer. The buyer can call the bank to authorize you to call or stop in to make payment. Or, you can go together. If the seller owes more than your purchase amount, ask for him to pay the remaining due at the same time or before you make your payment, if doing so individually. Ask the seller to note the account so the bank can discuss the loan payoff amount with you. This way you can ensure loan is paid in full.

Financing

If you plan to finance the vehicle, you can apply to the same bank the buyer used for the vehicle's loan. Doing so can save time; you won't have to wait for a mailed title or wait for the seller to provide you with a lien release. If this is an option for you, work with the seller and the bank. Your approved loan amount will pay off the vehicle's current loan and the bank will pursue titling with you as the new owner.