Skip to content

What is a Lien on a Car?

What is a Lien on a Car?

Are you about to get a car but the master told you that it has a lien? It’s a right that the us government gives to a creditor to assume ownership of a debtor’s collateral asset. In a nutshell, the us government gives your bank or credit lender permission to repossess your car or truck once you default.

A lien enables your car or truck dealership to retain your car or truck title before you clear the auto loan.If you’re a first-time car owner who wants to know what’s a lien on a car, listed here are answers to some important questions.

1. What happens if you buy a car that has a lien on it?

The law lets you buy cars with liens. If you’re planning to buy a car, ensure you go to the seller’s creditor to obtain approval. Doing this prevents disputes from arising when taking ownership of the car.

Tip: 6 Things You Should Never Tell A Car Salesman When Buying a Car

Should you get a car with a lease onto it? It’s not advisable because the vendor has an outstanding balance with his or her bank. Meaning you won’t receive the vehicle title the moment you’d want to. The vendor also won’t enable you to do much bargaining because they want every coin to get free from their outstanding auto loan.

Tip:

2. Can you sell a car with a lien?

In order to sell, you need your bank or car dealership’s approval. The key reason being security. Identity thieves who’ve obtained auto loans fraudulently violate regulations by selling cars with liens to unsuspecting buyers.

What happens once you sell a car with a lien? Your auto loan lender is entitled to deduct your outstanding balance from the sales. If you sold the vehicle for $30,000 however the outstanding balance was $18,000, you’ll go house or apartment with at the very least $10,000. The $2,000 goes to sales tax, loan administration fees, and other DMV charges.

Tip: Self Employed Car Loans With Easy Approval

3. Who can put a lien on your car?

1. Mechanic’s lien

Have you ever been aware of a mechanic’s lien? It entitles an unpaid mechanic to legally claim a percentage of your car. For instance, you had serious engine problems and the mechanic did a great job amounting to $5,000. However, 3 months have elapsed and he hasn’t received a dollar. At this point, they can file a mechanic’s lien worth $5,000.

What does this mean? One, you cannot sell your car or truck minus the mechanic’s approval. After gaining approval, your mechanic deducts his $5,000 before you obtain your share of the sales. However, if you had a car loan, the bank deducts your outstanding balance first.

2. Private debts

If your friend or relative lent you a substantial sum of money and you haven’t honored payments, they can file a lien in your car. However, this is a measure of last resource because it strains relationships indefinitely.

In this situation, your creditor hires an attorney to sue you for non-payment. If you lose the case, your debtor’s attorney applies for a lien against your car. That enables them to keep it including your car or truck title before you pay up.

4. How to buy a car with a lien on it

It’s possible to locate a really nice car that’s a low fuel consumption rate, mileage, and great engine performance, however, there’s one major problem. A lien that prevents the present owner from selling the vehicle to you.

Listed below are four important steps you should take when purchasing an automobile that’s a lien on it.

Tip: Common Auto Loan Eligibility Requirements

1. Request to see the car title

The car title is a credible indicator of ownership. If your seller doesn’t have one, then maybe it’s as a result of two reasons. He or she wants to market you a car that’s a highly skilled car loan balance. If not, then you could be working with a car thief.

Tip: Just how to Create a Healthy Budget for Your Car Loan

Remember to check on perhaps the Vehicle Identification Number (VIN) on the title matches with that in your dashboard.

2. Download a Vehicle History Report

This document provides important info in regards to the vehicle’s condition and current liens. You can get it at your State DMV or CarFax. This document helps you to verify whether the vendor disclosed all liens through your initial encounter.

3. Introduce yourself to the auto loan provider

If the vendor has a current auto loan balance, inquire further to introduce you with their credit lender. Doing this allows you to know whether the bank has authorized the sale. However, the main reason because of this meeting is it allows you to discuss how and when the vendor will clear their outstanding debt.

4. Have all parties sign a written agreement

In order to hold each party accountable, you need a written agreement for three important reasons. It serves as proof that the bank or credit union allowed the vendor to market the vehicle with an outstanding loan balance. Two, it shows that the vendor is in charge of clearing their auto loan balance by way of a specified date. The ultimate reason is that most three parties have agreed on the mode of payment.

Tip: Car Loans for Low Income Earners and Bad Credit

You will need an attorney to produce your written agreement and create an escrow account to oversee the transaction.

5. What are the cons of buying a car that has a lien on it?

1. Not ideal for someone in urgent need of a car

A car sale involving a lien usually takes several weeks. If the vendor needed money to pay for an urgent hospital bill, they might need extra time and energy to clear their outstanding auto loan debt. This isn’t perfect for an university student who requires a car for daily transport.

Tip: Getting Bankruptcy Car Loans

2. The transaction is time-consuming due to numerous negotiations

This type of car sales takes a significant amount of time due to several meetings. Issues arise whenever choosing the mode of payment since some sellers want to receive the money directly and then pay the bank. On another hand, that you don’t trust the seller. It usually takes several days for both parties to be in on an agreed mode of payment.

3. You cannot insure the car without the title

Car insurance companies cannot insure your car or truck without proof ownership. The written agreement between you and the vendor cannot serve as proof ownership. If you’re paying the price in installments, you’ll have a hard time explaining you to ultimately police officers on the road.

4. No warranties transferred to you

In this situation, any benefits that the vendor enjoyed from their car dealership cease after you receive the car. You’ll have to spend your own money on all repairs and maintenance.

Tip: Second Chance Car Loans

5. Taking on an outstanding auto loan poses high financial risks

If the vendor agreed to lessen the price in trade for you overpowering their outstanding auto loan, it is sold with major risks. Any late payments will affect your credit score. Just in case the vendor has a trustworthiness of imposing hidden charges, you will have to bear the unpleasant surprise.

Tip: Just how to Lower Your Monthly Car Payment

6. Bottom line!

Buying a car with a lien should really be your last resource because any sale that involves significantly more than two parties has a high chance of having complicated. If you really need an affordable car, focus on improving your credit score to obtain better deals in your future auto loans.