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What Is a Lien and How Do You Sell a Car With One?

Selling a Car With a Lien - The Complete Guide
Jamie Cattanach
Jamie CattanachUpdated October 27, 2022
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Editor’s note: Lantern by SoFi seeks to provide content that is objective, independent and accurate. Writers are separate from our business operation and do not receive direct compensation from advertisers or partners. Read more about our Editorial Guidelines and How We Make Money.
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 how to sell a car you haven’t paid off.

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 auto 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.Recommended: Leasing vs. Buying a Car: Pros & Cons of Each

How Do Car Liens Work?

A car lien functions as a security interest — it gives the lienholder the right to repossess your vehicle if you default and fail to repay the loan. The way how car loans work is a borrower buys a new or used vehicle with auto financing and agrees to repay the debt over time. Secured auto loan lenders may place a lien on your vehicle as part of the financing terms and conditions. 

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 can vary depending on whether you’re hoping to sell your car to a dealership or on the private market. Selling a car to a dealership may be easier, but you’re likely to get less money for your car than you would with a private buyer.

5 Ways to Sell a Car 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.Here are five ways how to sell a car with a lien:

1. 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 its 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 a car loan — you’ll be required to pay the difference out of your own pocket.

2. Pay Off the Loan Before Selling

When exploring how to sell a vehicle with a lien, you may pay your car loan off early before selling it. Paying the auto loan off in full will give you full ownership of the vehicle. This can open the door to you selling your car without a lien. Lenders may not be listed on your title as a lienholder if you have 100% equity in the vehicle you own.

3. The Buyer Pays Your Loan Off

A private buyer can pay your car loan off as part of the process of buying your car. This may not be as simple as selling to a dealership, but arranging for the buyer to pay off your car loan is a possible way on how to sell a vehicle with a lien.Selling to a private buyer can be a lot more lucrative than selling at the dealership. 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.Private party auto loans can provide consumers with financing to buy used vehicles from private sellers rather than dealerships. Banks, credit unions, or nonbank financial institutions may offer these loans.

4. Sell Through an Escrow

Another option for how to sell a car you haven’t paid off 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.

5. Sell at the Lender’s Office

When exploring how to sell a car with a lien, you may consider selling your vehicle to an interested buyer at the lienholder’s office. This may be the fastest way for you to pay off the auto loan and sell the vehicle.The lender or lienholder may have no security interest in the vehicle once you’ve repaid the auto loan debt in full. You can make arrangements at the lender’s office to satisfy the debt and sell the vehicle to an interested buyer who would become the owner of the used car. The title can be transferred into the buyer’s name once the auto loan is fully paid off.

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.There are different types of car titles, including the following:
  • Clear title: This is a title that has no lienholder on it. Having a clear title on your car means you are the sole owner of the vehicle. It also means no other party has a security interest in your vehicle.
  • Lien title: A title with the lienholder’s name on it is a lien title. The lienholder may have possession of the title until you pay off your car loan.
  • Clean title: A clean title on a vehicle suggests that the vehicle doesn’t have a history of sustaining major damage. A rebuilt car may not have a clean title if the vehicle previously sustained major damage from a crash, fire, or flood.

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.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 may 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 by SoFi 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.

Frequently Asked Questions

Can you sell a car with a lien?
What is a lien release letter?
Is it illegal to sell a car with a lien on it?
Photo credit: iStock/Nuthawut Somsuk
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About the Author

Jamie Cattanach

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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