How to check if a used car has a lien

1. Read the front of the title. Look for a lienholder: a bank, credit union, or finance company listed with its address. If one is listed, the loan has to be paid off and the lien released before the car is free and clear.
2. Ask for proof the loan is paid. Depending on the state, a lien release can be the lender's signature in the release section of the title, a signed release form or a letter on the lender's letterhead, or an electronic release filed with the state, which may leave the seller with no paper to show you. Confirm it with the state (step 4). If the loan isn't paid yet, ask for a payoff letter: the lender's written statement of exactly how much it takes to close the loan, and the date that amount is good through.
3. Call the lender yourself. Get the number from the lender's own website, not from the seller, and have the seller on the call so the lender can discuss the loan. Confirm the payoff amount and how the lien will be released.
4. Check with the state. Ask the motor vehicle agency in the state where the car is titled how to check for a lien. Some states have an online lookup by VIN. Wisconsin's, for example, shows whether the title went to the owner or to a lender. Find your state's agency on USA.gov.
5. Run a history report that includes liens. Reports from NMVTIS, the federal title database, cover title brands and the latest odometer reading but not liens. Some paid reports add a lien search from other records, and the title-history report in the VIN check above includes one. See how free and paid reports compare.

• The seller doesn't have the title, or says the bank has it.
• The title lists a bank, credit union, or finance company as lienholder, with no release signed on the title and no separate release from the lender.
• The seller shows you something other than the title, like a registration, a photocopy, or an ownership notice. In Wisconsin, for example, owners with a loan get a “Confirmation of Ownership” that can't be used to transfer the car.
• The seller wants cash or a wire transfer right away and promises to “pay off the loan after.”

The loan belongs to the seller, but the lender's claim is on the car. If you pay a seller who still owes money and the loan never gets paid off, here's what you risk:

• The lender could repossess the car from you, even though you paid the seller. New York's DMV warns buyers about exactly this.
• You can't get a title free of the lender's claim until the lien is released. That can hold up your title and registration and make the car hard to sell later.
• You're left chasing the seller for money they may have already spent.

A car with a loan on it can still be a good buy. The key is that the loan gets paid off with your money, straight to the lender, so the lien actually comes off.

1. Get the payoff letter. Check the amount, the date it expires, and exactly how the lender wants to be paid. Confirm those payment details when you call the lender at a number you looked up yourself, not one from the letter or the seller.
2. Put the title plan in writing. Before anyone pays, ask the lender how it will release the lien, on paper or electronically, and where the title will go. It's often mailed to the owner on record, which is the seller. Ask the lender, and your state's motor vehicle agency if needed, whether the release or title can be sent to you or handed over at the payoff. Write the plan into your bill of sale, including when the seller will sign the title over to you.
3. Pay the lender, not the seller. If the seller's bank or credit union has a branch nearby, meet there and pay together. No branch? Pay the lender directly the way it tells you to, such as a cashier's check made out to the lender, never through the seller. Either way, get the lender's written confirmation that the loan is paid in full.
4. Pay the seller what's left. The seller gets only what's left after the payoff. If the title is going to the seller, hold that money back until they sign the title over to you, because until then you may not be able to title or register the car in your name. If the seller owes more than your price, they have to pay the difference to the lender before the deal can close.
5. Plan for a wait. Texas gives lenders 10 days after payment to release a lien, and Wisconsin says a new title can take up to six weeks to arrive.

The simplest safe option is to wait. Let the seller pay off the loan, and come back when they have the released title in hand. That's the better choice when the loan is close to your price, since there's little money left to hold back. Rules for electronic titles and lien releases vary by state, so check with your state's motor vehicle agency before you pay.

When you buy from a dealer, paying off any loan on a car it took in trade is the dealer's job, and some states set a deadline. Florida, for example, gives dealers 10 days to pay off a trade-in's lien before selling the car to another customer. Your title should show no lender except yours, if you financed. If your title or registration hasn't arrived before your temporary tag runs out, contact the dealer and your state motor vehicle agency.

Trading in a car you still owe money on? The CFPB suggests these steps:

• Find out which department at your old lender can confirm the loan was paid off.
• After the deal is final, wait one week, then call your old lender and check that the loan is paid off.
• If it isn't, contact your new lender. If that doesn't fix it, you can file a complaint with the CFPB or the FTC, or contact your state attorney general.
• If the dealer promises to pay off what you owe beyond the car's value (negative equity), check that the amount isn't added to your new loan contract.

Contact the seller in writing and ask them to pay off the loan and send you the lien release. Call the lender too, explain that you bought the car, and ask what it would take to release the lien. Keep your bill of sale, the ad, your messages, and proof of payment.

If a dealer sold you the car, also contact your state motor vehicle agency and your state attorney general's consumer protection office. Rules vary by state, so a local consumer attorney can tell you your options.