Can I Buy a Car With a Lien?

Many states do not allow title transfers when a lien is listed on the title. If your state does allow such title transfers, you may face repossession if the seller hasn't satisfied the loan. Check with your state's motor vehicle department for direction before you purchase a car with a lien and consider the financial risks of the purchase before you move forward.

State Lien Requirements

To find out if you can title and register a vehicle with a lien listed on the title, call your state's motor vehicle department for instruction. Many states do not allow title transfers when the title has a lien listed on it, even if the loan has been satisfied. Some states offer a spot on the vehicle's title for the lien holder to sign, so if the lender signs the title, the lien will be removed from the title you receive after transferring ownership. You must follow your state's rules to transfer ownership, so call ahead to ensure you and the seller follow state requirements.

Lien Release Paperwork

If you learn that you can't transfer vehicle ownership without a lien release or proper signature on the title, ensure the seller provides you with the necessary lien release paperwork. It is not your responsibility to obtain a lien release or title signature. In fact, many lenders will only send the lien release or discuss account information with the original account holder, which is the seller of the vehicle. Even if your state doesn't require the release, the lien holder will remain documented on your title when you transfer ownership without a lien release. This may cause issues when you try to sell or trade your car in the future.

Financial Risks

If you see a lien holder on the vehicle's title, it signifies that a lender still has financial interest in the vehicle. If your buyer does not provide you with proof that the loan has been satisfied, you can't prove the loan has been paid. Do not take a buyer's word for the vehicle's loan status; require proof the loan is paid. Otherwise, the lien holder can repossess the vehicle from you even though you paid for the car. You won't be liable for the loan's past loan amount, but if you want the car back, you'll have to pay the lender for the overdue loan balance.

Paying to Remove the Lien

The vehicle's seller may plan to pay his lien holder with the money from your sale, which is not unusual. If the seller plans to do this, accompany him to the auto loan provider to make your payment. If the lender is local, you can likely receive the car's title or lien release immediately. If the lender is not local, call the lender to make your payment directly. This way, you know the vehicle's loan is satisfied. The seller must note his account with the lender to allow you to call and make your payment.