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, and How Do I Remove It?

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 like 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.

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.

Car Loan Payoff Amount

Trading in a Car with a Lien on the TitleIf 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 your equity for a down payment on your next car.

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 a Car with a Lien

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 for you.

Finding a Dealer to Work With

When there’s a lien on your car, it has to be removed before ownership can be transferred. 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.

If you’re ready to trade in your car for a new one, but aren’t sure where to start, let The Car Connection lead the way. With our simple auto loan request form, and our nationwide network of dealers, we want to connect you to a local dealer that can help you get the financing you need.


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