New car buyers often finance their vehicle purchase for a longer period than they intend to keep the car. The result is that when it’s time to sell, the title will still have a lien holder, which must be paid in full before ownership can be transferred to the buyer. As a seller, you can trade the car in at a dealer, which will work directly with the lien holder to facilitate the transaction. However, selling to a private party can often yield a higher price, meaning that you’ll need to determine the best way to complete the transaction and do some extra work to get the sale completed.
Prior to putting the car up for sale, call your lender to get the full payoff amount required to satisfy the lien. Subtracting the total balance due from the book value of the vehicle will tell you whether you’ll be getting cash from the sale of the car or if you’ll need to write a check to cover the difference. If you’re not in a position to pay out of pocket to close the deal, you can either wait until you have enough money saved or use the balance due as the baseline selling price for the car.
If the lien holder is a large institution, a regional bank, or a local credit union, you may be able to go to an office with the buyer to transact the sale, pay off the lien and transfer the title. This option is the fastest way to get your money from selling the car and for the buyer to get the title, because the sale and the lien satisfaction are taken care at the same time. Scheduling an appointment with office of the bank or credit union beforehand can ensure there will be someone there who can execute this type of sale.
If the lender is not local and the proceeds are enough to cover the amount due, the buyer can send the balance due to the lender and then pay you any surplus. For the buyer, this is a direct approach that avoids the extra step of paying all proceeds to the seller, who must then transfer the funds to the lender. In some states, the buyer can send documentation of the sale along with title transfer instructions to the lender, which will then send the title to the buyer. In other states, the title will be sent to the seller.
Selling a car with a lien holder on the title, especially if there isn’t a lender’s office within reasonable travel distance, requires a high level of trust between the two parties. With the potential for wait times to transfer title and payments going to third parties, there may be risks for both the buyer and the seller. If you have any concerns about the completion of the sale, consider doing the transaction through an escrow account. This will add an extra expense to the sale, but can also ensure that both sides of the deal get exactly what they are expecting.
