How to safely buy a car with a lien
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Updated on by Andrew Crowell
Buying a car with a lien is risky because the seller doesn't have a clear title to sign over to you. Without a title that is free and clear of all liens, you can't register the vehicle and transfer it into your name.
To satisfy the lien and get a clear title, the seller has to pay off their loan, but they often need you to pay them first in order to do that. After paying off their loan, it can take weeks or even months to get the title and in most cases it's sent to the seller, not you. The problem is that you have to trust your seller to 1) pay off their loan with the money you paid them and 2) meet you again after they receive the title weeks later. Meanwhile, you can't register the vehicle until you get the title and in many states you can't get a temporary permit that allows you to legally drive the car while you wait.
This article describes a couple different ways you can buy a car when the seller still owes money on their loan. One is to meet at the seller's lender and the other is using KeySavvy, where we pay the lienholder and receive the title directly.
Option 1: Meet at the seller's lender
If your seller financed with a bank or credit union that has a nearby branch, you can call them and see if they have the title in their possession. Ask if they have a process for private party sales and see if they have any recommendations for safely buying a car where they are the lienholder.
If they have a paper title on premises, you may be able to meet your seller at the branch, pay the lienholder directly, and pay your seller the remaining amount. The lienholder can release the lien right away by signing the title and handing it to you directly. With the lien released and the seller's signature releasing their ownership, you can go straight to your local DMV and register the vehicle in your name.
Electronic titles
Many states use an electronic lien and title (ELT) program that allows lenders to avoid managing paper titles. When a seller finances their vehicle in an ELT state, the lienholder has an electronic lien recorded by the DMV and there is no paper title. This is better for lenders because they don't need to store and manage paper titles that could be lost or damaged. When a seller pays off their loan, the lienholder notifies the DMV to release the lien and the DMV prints the clear title and mails it to the seller.
While this is convenient for lenders, it makes meeting at the seller's lender fruitless. They can't hand you a paper title because there isn't one. You can still pay the lienholder directly and ensure the seller's loan is paid off, but you'll have to wait several weeks before the title is mailed by the DMV and it won't be mailed directly to you. You'll have to rely on meeting your seller a second time to get the title from them.
Option 2: Use KeySavvy to pay off the loan
KeySavvy is a licensed dealership which means we can request that a lienholder send us the title when releasing the lien. All lenders have processes to support dealers when they purchase a financed vehicle from a private seller. We use these same tools to make buying a car from a private seller with a lien safer and easier.
After you agree on a price with your seller on KeySavvy, we reach out to the lienholder and obtain the payoff amount for the loan. You can then pay online and your money is held in escrow until the seller hands over the keys. When you or a vehicle shipper picks up the vehicle, we pay off the seller's loan and pay the seller the difference. If the seller owes more on their loan than the sale price (a.k.a. underwater), we collect an additional payment from the seller.
We receive the title, not your seller, and then we mail it to you. In the meantime, we issue you a temporary permit so you can drive the vehicle right away. You can share this page with your seller so they can learn more.
Conclusion
It's certainly possible to buy a car from a private seller with a lien, but it's not as simple as when they have a clear title in-hand. If you can meet at their bank and get the title right after paying the lienholder, that's a good option, otherwise we recommend using KeySavvy (obviously). We don't recommend paying your seller, hoping they pay off their loan and hoping again that they get you the title weeks, or sometimes even months later.
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