Buying a car from someone that is already financed can be a pain if you have no idea what you're doing. Based on past experiences, I will guide you through the process so you can avoid any hiccups along the way! The first thing that you'll have to understand is how to pay off the lien (pronounced lean). What the heck is a lien?!? If you're already scratching your head like a confused chimp, it's okay. Many of us have been in your shoes. The lien is the amount of money that a person still owes on whatever they financed. For our purpose, the lien is the amount that the bank still needs to release the car for sale.
The Lien Mean Machine
Let's say the you want to buy a 2012 Honda Civic off of someone that still owes $13,000 and yet they are asking $14,500. Let's start by dealing with this $13,000 hurdle. Unless you have $13,000 laying around, you'll likely have to take out a loan to pay off the lien. Go to your bank and apply for an auto loan that is enough to cover the lien. Applying for a loan can be done either in a bank branch or online in most cases. A decent APR (The rate of interest you will incur while having the loan) will be no more than 5%. If your APR is above that, I would shop around banks and see if you can get a better rate. Of course if you have terrible credit, you just may have to settle for a higher APR. If your loan is approved, your bank will then work with you to pay off the bank or credit union that holds the lien of the car that you want to buy. If you have a good bank, they should really help drive the process from that point on. The bank will then need to talk to the seller to get the information of the account that the lien is in. They can either do this in person or over the phone which is super convenient (Especially if you are crunched for time). After the bank has all of the information that they need from both you and the seller, we can proceed to the next step.
Before you can complete the sale on the car, you must have proof of insurance. You can get a great deal on auto insurance through USAA. They do awesome work for the military! While you're setting up your insurance, make it valid starting the day that you are planning on purchasing the car.
Taking the Oath
Make an appointment at your bank where you and the seller can finalize the sale. Making an appointment is important because the bank will need some time to get your paperwork together and also be sure that a notary will be present. In this meeting you will sign all of the paper work detailing the terms or your loan in front of the notary. The notary is the legal witness of the sale. Depending on your state, you may be required to more or less swear an oath that you will pay off your loan in accordance to the terms. The seller must also swear an oath to legally complete a sale like this. After this has taken place, your bank will pay off the lien to the seller's bank or credit union. In simple terms, this means that your bank now owns the lien and the seller is no longer responsible for it.
Show Me the Money!
For this example, we're buying a 2012 Honda Civic for $14,500 and the lien was only $13,000. After some complex algorithms, you will find out that you still need to pay the seller $1,500. Okay maybe it wasn't so complex to figure that out... The way that you pay this to the seller is totally up to you and the seller. The seller may ask for cash or even a check. After that, the car is yours!
Bag it and Tag it
What you need to do now is drive your new car straight to your local licensing agency to get temporary tags and registration for your new vehicle. Depending on your state, this place might be called a BMV (Bureau of Motor Vehicles) or DMV (Department of Motor Vehicles). To find out the agency responsible for issuing vehicle titles and registration, click here. After you get your temporary tags and registration, put them on your car immediately to make it official! Or in other terms, legal.... While you are at your licensing agency, ask them where you will pay the sales tax on your car. In Ohio for example, they BMV will mail you information detailing when and where to do that.
Drive Off into the Sunset
You've done it! Enjoy your new car!