Trading in a Car with a Lien on the Title

It's time to upgrade and trade-in your old car for a new one, but you find that there's a lien on the title. This makes the trade-in process a bit different, but it's extremely common and no problem if you know how to proceed to get the most value from your trade-in.

What's a lien on a car? Before you start doing trade-in research, make sure to check if there’s a lien on your vehicle. When you take out a car loan, a lien is created. This acts as a cushion for the lender – or whoever is listed as the lienholder – and gives them the right to repossess the vehicle if you default on the loan.

How do I remove a lien? When there’s a lien on your car, it has to be removed before ownership can be transferred. This means the loan balance has to be paid in some way to remove a lien. Once the loan is paid off, the lien is removed. Depending on what state you live in, the lienholder may send an official release document to either you or your state’s DMV stating that the loan has been paid off and you now own the vehicle.

If you need another vehicle, the easiest way to do this is to head to a dealership. You’ll be able to sell the car to the dealer, they'll pay off the lien, and you can apply any equity toward a new vehicle.

Trading in a Car with a Lien on the TitlePaying off your auto loan. If your vehicle isn’t paid off, the first step is to determine the payoff amount. The payoff amount includes your current balance plus, typically, 10 additional days of interest charges. Once you have the payoff amount, you go to the dealer and get your trade-in appraised.

If the appraised value is more than the loan balance, you have equity in the vehicle. The dealer pays off the loan and cuts you a check for any remaining balance – which you can either pocket or use for a down payment on your next car.

What if I have negative equity? If the appraised value doesn’t meet your remaining loan balance, you have negative equity. When you have negative equity, you have a few options to consider: roll over the amount into the new loan, cover the difference yourself, or wait it out. It’s important you don’t have negative equity in your car when you go to trade it in. Even if you’re able to roll over the difference, you’re still responsible for paying it – it doesn’t magically go away, it just gets lumped into your new loan.

Selling your car privately. To get the most money out of your car, selling it privately is the way to go. But if there’s a lien on the vehicle, it requires some more legwork. You need to disclose the information about the lien and, once you find a buyer, you need to sign over the title to the new owner. Then you go to the lienholder and pay off the loan so the lienholder can issue a release of lien letter, allowing the new owner to transfer the title at the DMV.

If your main goal is to use your car as a trade-in for a new vehicle, your best bet is to head to a dealership. Technically, you won’t be trading it in, but selling it to the dealer. The dealer completes the paperwork with you.


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