A lien on a used car can seem like a major warning flag. This is true to an extent, but with care, you can benefit from someone who needs funds immediately. However, it is still very dangerous to purchase a car with an existing lien on it if you don’t do your research.
A lien is similar to collateral, with key differences. A lien grants the legal right to one party to seize or withhold the property until the debt is repaid. Collateral, on the other hand, would be liquidated by the lender upon failure to pay.
Two important points before we continue:
- You cannot register a vehicle with the Ministry of Transportation with an existing lien on it.
- You are not allowed to sell a vehicle with a lien on it (unless you pay off the lien at the time of sale, details below).
Checking For Lien
To check a vehicle for a lien, consult the Used Vehicle Information Package (“UVIP”). Aside from checking for liens, analyzing this document is very important in making an informed purchase. Liens will be updated in the UVIP in approximately one month. If you see a vehicle with a lien on it and the seller claims it has already been paid off, call the institution to confirm.
Purchasing A Car With a Lien
This is actually a very common case and when carefully approached, presents no danger. What is important is that when you purchase a car in this situation, with a lien on it, that you pay the lien holder directly. The institution that placed a lien on the vehicle is most likely a bank. Our preferred solution is going to the bank to complete the transaction and sitting down with an agent to finalize the deal.
You must ensure that by the time you walk out of that office the lien is fully released. If the amount you paid isn’t enough to release the car from the lien, you must request the seller to pay the difference before you give any money or sign any paperwork.
Keep in mind that by purchasing a car from someone who desperately needs funds, you may find yourself with a great deal. Understand that the car may not have had the tip top treatment due to it’s owner being financially distressed. This is not to dissuade you from your purchase, merely to present all perspectives.