Selling a Car With a Lien - The Complete Guide

Jamie CattanachUpdated August 15, 2022

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Selling a car can already be a bit of a procedure, and it’s made just a little bit more complicated if your car is still under lien (which is to say, if you still owe money on it). That said, you can sell a car with a lien on it, though you may have to go through some extra steps, especially if you want to get the best deal.So buckle up: we’re going to walk you through everything you need to know about selling a car you haven’t quite paid off yet.

What Is a Car Lien?

A car lien is an arrangement when you take out a car loan in which the lienholder, usually a bank, holds the title of your car as you pay off the amount you owe on it. This is considered a secured loan, since the bank can repossess your car if you fail to pay up. In other words, a car lien gives the lienholder a safeguard in case you don’t pay. Once you do pay off your car loan, the lienholder will usually send a lien release document transferring the car title to you.Keep in mind that a lien or car loan is different from a car lease. With a loan, at the end of the term, you own the car; with a lease, at the end of the term, you don’t. You’re simply paying for the privilege to drive it around.

Can You Sell a Car With a Lien on It?

The short answer is: yes, you can sell a car with a lien on it. But the longer answer is: yes, but it’s probably going to create a little more work for you.That’s because if your car is still under lien, the lender, or lienholder, is still holding onto the title in case you fail to pay.The loan needs to be paid in full in order for the title to be transferred. That means you’ll need to get enough money to pay for the loan entirely before you can officially sell the car to someone else. The difficulty of this will vary depending on whether you’re hoping to sell your car to a dealership or on the private market. Selling a car to the dealership will be easier, but you’re likely to get less money for your car than you would with a private buyer.

How to Sell a Vehicle With a Lien

If you have a loan balance on your car, the first thing you need to do in order to sell it is to determine the payoff quote, which isn’t the same as the balance you see reflected on your account. The payoff quote is usually higher than the account balance because the lender has to factor in interest that’s been accrued since you last paid your auto loan; interest builds up every day. Your payoff quote will be good for a set and limited amount of time, so be sure to pull it when you’re actually ready to sell your car, and not earlier. Additionally, you may want to revisit your payoff quote throughout the sales process to ensure your pricing is high enough to cover the amount — and remember, you’ll need to continue making your regular monthly payments in the meantime.

Sell to a Dealership

Once you have your payoff quote, things start to diverge depending on how you’re planning to sell the car. If you’re hoping to sell it to a dealership, matters might be a little simpler. Often a dealership is equipped to pay off the loan in full and handle the title transfer on their own.However, this only works if the trade-in value of your vehicle is as much as, or higher than, the amount you owe. If you owe more than the car is worth — sometimes known as being upside down on the loan — you’ll be required to pay the difference out of your own pocket.

Sell to a Private Buyer

Selling to a private buyer can be a lot more lucrative than selling at the dealership, but if your car is under lien, it’s going to be a little bit more complicated. Chances are you can’t pay off the loan out of your own pocket in order to obtain the title, which you need to transfer to your buyer — and the buyer probably doesn’t want to hand you a huge check and then wait until the transaction goes through to drive away with their new vehicle and its paperwork.In many cases, a lienholder may accept a check directly from the buyer, especially if you’re able to go to a physical office together and explain the situation in person. However, if you’re hoping to do more than just break even on the deal by having your buyer pay off the lien, you’ll need to arrange this with the buyer ahead of time as well, so they’ll know that some of the money is going directly to you and some is going to the lienholder.

Sell Through an Escrow Account

Another option for selling on the private market is to set up an escrow account, which will hold the buyer’s money until the loan is paid off and the title of the vehicle is transferred. An escrow account is a great way to ensure security on both sides, but setting one up does incur fees — which is another factor you and the buyer will have to negotiate on.

What Happens If You Sell a Car With a Lien on It?

So long as you go through all the proper steps to ensure the lien can be cleared and the title can be transferred, the same thing that normally happens when you sell a car happens if you sell a car with a lien on it: you don’t own the car anymore!The problem is, as mentioned above, it can be a tricky process — so up next are some ways to avoid going through it.

Ways to Avoid Selling a Car With a Lien

While it’s possible to sell a car with a lien on it, if you’d rather not, here are some options to try.

Communicate With the Lienholder

Your lienholder is the party who is listed on the title of your car until it’s paid off, so if you’re hoping to sell it, keeping an open line of communication with them is a great first step. You may be able to work out something with the loan terms to help you pay off the car before you go through with the sale transaction.

Refinance the Car

If paying off the loan in its current form just isn’t a possibility for you, it may be worth looking into whether or not a refinance could help lower your car payment. Refinancing a car involves taking out a new loan, with different terms, that pays off the old loan — and which often spells lower monthly payments or less overall interest for you. Of course, there are many things to consider when refinancing a vehicle, such as your credit score and history, the impact the refinance might have on your credit score in the future and details about the vehicle itself. (For example, it can be more difficult to refinance a car with high mileage than a new one with less road time under its many belts.)That said, refinancing can mean big savings and may make it easier for you to pay off the loan more quickly, so it’s worth looking into at the very least. Under certain circumstances, you may even be able to refinance your vehicle through the same lender, especially if your financial situation has significantly changed.

The Takeaway

While selling a car with a lien is possible, it can be a little trickier than selling a car you’ve already paid off. The level of effort you’ll need to extend will depend on whether you’re selling to a dealership or on the private market.Whether you’re getting ready to sell a car on which you still owe money or you’re simply trying to lower your car payment, refinancing can make it easier to get where you’re going. Lantern makes it easy to compare auto refinance rates in just minutes — all you have to do is enter a few details, and it won’t affect your credit score.

Photo credit: iStock/Nuthawut SomsukThe tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.SOLC1021229

About the Author

Jamie Cattanach

Jamie Cattanach is a full-time freelance writer whose work has been featured at CNBC, Yahoo Finance, The Motley Fool, the Huffington Post and other outlets. At SoFi, she writes about investing, retirement, student loans and how to get your money right -- no matter what that means for you.

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