We live in a time where cars have become more of a necessity than a luxury. It’s not surprising, therefore, to see how car sales have significantly increased over the past few years. And while many may misconstrue this as a by-product of an affluent society, allow us to burst your bubble a bit by telling you an obvious fact: many cars are so costly that they are often purchased by using some form of credit or car loan. So it shouldn’t surprise you to know that more than three quarters of privately-owned cars were purchased under a financing scheme.

What to know before you buy a car under finacing

It’s not illegal to buy a vehicle that has money owed on it, but it’s a complicated process compared to just buying a car with no strings attached, whatsoever. Technically, the lending company who sold the car and extended the car loan to the buyer are the ones who own the car title, and it will remain that way for as long as the buyer hasn’t completely paid off all his debt.

Before you can get the car’s title, you need to wait for the seller to get the title first. And before he or she can do that, they need to pay off the bank or lender before the car’s title will be handed over to them. Now, it’s easy to do this if they have the money to pay for it; if not, then that’s when things become complicated for everyone.

When faced with this kind of situation, it’s important to know the available options when purchasing a pre-financed car. That way, you can choose the best decision that fits your needs and budget. Here’s how to buy a car that is still under a financing:

Ask the seller to pay out their loan

One option you can take is to ask the seller to first pay off their loan and then transfer the vehicle’s title to you. This might put tremendous pressure on the seller, but it’s the only way for you to be sure that you—and only you—have the legal rights to the car.

Stay safe by asking the seller to go with you to his bank or lending institution and ask them to handle the transfer of car ownership to you. Make sure to witness the payoff process, and once you do, then you can proceed to buying their vehicle.

Volunteer to pay out their loan

Now, it’s not every day that you’ll find car sellers who can easily come up with money to pay off their entire loan. In fact, it’s probably the reason why they’re selling the car to you in the first place—they don’t have the financial means to pay for the loan, so they may want you to continue paying off the amount they owe to the lenders.

If you know the seller (and TOTALLY TRUST the seller), you can buy their car and ask the seller to pay off his loan with the sales he got from it. This is an extremely risky move, so we don’t recommend this unless you are ABSOLUTELY SURE that they will pay off their loans.

Pay the lien by getting a loan

A lien is given when a buyer takes out a loan to purchase a vehicle. In this case, he or she buys the car and pays using the funds provided by the bank or lender. This also gives them a lien on the car. What this means is that when the buyer can’t repay the loan, then the bank or lender can get the vehicle and sell it to repay the loan.

Should you decide to shoulder the seller’s loan and pay them in full, then the lien holder (the lender or the bank) releases / clears off the lien, giving you 100% owner’s rights to the vehicle.

However, if you pay the loan in installments, then the bank or lender puts a new lien on the car in your name. By financing your purchased vehicle, you now owe them money and they become the new lienholders on your car.

Pay through escrow

Buying a car already under finance can be complicated and time consuming. If that’s the case, then you might want to consider employing an escrow or lien-payoff service company to hold your money until the seller has paid off his loan. These companies will be responsible for managing and collecting all the car payments from the buyer. They will also hold the car title until everything has been paid off. Legitimate escrow service companies also have the added advantage of working with the seller’s lender so all the important files related to the car’s sale is documented and provided to you.