What Is a Lien on a Car and How Does It Work?
Summary
A lien on a car means a lender has a legal claim to your vehicle until the car loan is paid off. Learn how car liens work and what happens if you miss payments.
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Car liens might seem confusing, but they’re important to know about — especially if you’re buying or selling a car. A lien is a legal claim that lets a lender take back your car if you don’t pay off your loan.1
Here’s what you need to know about car liens and how they can affect your ownership or the ability to transfer ownership to someone else.
What is a lien on a car?
When you take out a car loan, a lien is typically placed on the car’s title until the loan is paid off. A lien is the lender’s legal claim to the property. Liens also apply to a mortgage on a home or services on a construction project. For example, when you have a mortgage or a home equity line of credit (HELOC), the lender can enforce a lien on the home’s title. If you hire a plumber and you fail to pay, they can get a mechanic’s lien, which could interfere with your ability to sell your property in the future.
A car loan is a secured loan that uses your car as collateral (something valuable you own) to secure the loan. If you default on the loan, the lender has the legal right to take possession of the car to recover the amount owed. However, if you continue to make payments on time and pay off the loan, the lien is removed and full ownership is transferred from the lender to you.2
Can you sell a car with a lien?
Selling a car that’s still subject to a lien may be possible depending on your situation, but it takes a few extra steps. Here are some ways you can go about selling your car if you have a lien:
Pay off the lien before selling
If you can afford to pay off the remaining loan balance before selling, you could receive a clear title and avoid complications.
Contact your lender so they can explain how to pay off the loan and transfer the title. Some lenders allow sellers to pay off the balance at the time of sale, while others require full payment before releasing the lien.
Trade in the car at a dealership
Some dealerships might be able to work directly with your lender to pay off the lien as part of the trade-in process, which can make the transaction easier for you. However, if the trade-in value of your car is less than what you owe on your loan, you may need to cover the difference before the sale can be completed.
Sell to a private buyer willing to pay off the loan
Some buyers might agree to pay off your loan as part of the car purchase, but this process can be trickier. Some lenders might not allow private sales when a lien is still in place, so it's important to check with your lender first to understand their requirements.
Research how much your car is worth
Before you decide to sell, it’s helpful to know the car’s market value. Websites like Kelleybluebook.com can provide an estimate of a car’s worth based on its make, model, year, condition and location.3 Understanding the car’s value could help you negotiate a fair price and decide whether paying off the loan before selling is a good option.
Can you buy a car with a lien on it?
Yes, you can buy a car that has a lien, but you need to make sure the lien is paid off in order to have the title transferred to you.
Here are some ways to handle the lien when buying a car:
- Ask the seller to pay off the loan before selling the car.
- Pay off the loan yourself as part of the purchase.
- See if you can take over the seller’s loan.
Buying a car with a lien can be risky, but it’s not always a bad choice. You might get a better price if the seller wants to sell quickly. However, if the lien isn’t cleared the right way, you could end up owing money on a car you don’t fully own.
Before buying, check with the lender to make sure the lien will be removed and get written proof.
Steer clear of surprises
Car liens might seem complicated, but understanding how they work can help you make smart choices when buying or selling a car. Whether you're paying off a loan, trading in or purchasing a car with a lien, it's important to follow the right steps to avoid issues.
Before making moves, check with the lender, get everything in writing and make sure the lien is properly cleared. Taking the time to follow these steps could help you avoid extra costs and make the process smoother.
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This article is for general education and informational purposes, without any express or implied warranty of any kind, including warranties of accuracy, completeness, or fitness for any purpose and is not intended to be and does not constitute financial, legal, tax, or any other advice. Parties (other than sponsored partners of OneMain Financial (OMF)) referenced in the article are not sponsors of, do not endorse, and are not otherwise affiliated with OMF.
