Under The Hood

How To Purchase A Financed Vehicle From A Private Seller

Eight out of ten times, it is the reported experience that private sellers can offer you a better deal on the price; there are fewer mark-up charges and transaction fees, sales are wrapped up in one or two meetings and sometimes the very same day.

With private sellers, there is larger room for negotiation, especially if the seller is in a hurry to complete the transaction and receive their cash. With benefits like these, it is no surprise that buyers are willing to jump through the hoops required to purchase financed cars from private sellers.

Nevertheless, it's recommended to proceed with caution. If the car you intend to purchase has any outstanding loans on it, it implies that the seller is not the holder of the title of the car but the lender or the financing institution, be it a bank, credit agency or third party services. The lienholder needs to be compensated and the title needs to be transferred to the owner before the buyer can secure legal possession of the car.

However, this should not deter you from purchasing a financed vehicle. While it might take a few extra steps to transfer the title to your name following the purchase, the process has become more streamlined in recent years.

Here is what you need to do before purchasing a car with a lien on the title.

· Log into your Swap Motors account and check your desired vehicle's CARFAX Vehicle History report for an outstanding loan

At Swap Motors, we provide detailed and comprehensive information on all listed cars so that our clients can make informed decisions. Review the Carfax report provided with each listing to flag outstanding loans on the vehicle and receive information on lienholder(s).

· Discuss Results of Your Lien Search with the Seller

In case the car has a reported lienholder, ensure that the seller is in possession of a clear title before completing the purchase. It might be useful to discuss and negotiate the title transfer process early on to finalize a timeline for the transaction process and transfer of title. Do not hesitate to enquire about the pay-off balance and collect relevant

information about the lienholder. Open and direct communication from the beginning is key to hassle-free sales.

· Schedule a vehicle to test drive the car

Buying a car without test driving is an inexcusable folly on its own. As with every vehicle, we highly recommend that you schedule a visit to test-drive the car. If you find that your car does not perform as per your expectation or decide that it is just not right fit during the drive, then there is no longer the need to proceed with the title transfer. Remember, you can schedule a visit at your convenience and meet the seller at a pre-determined location or at Swap Motors. Review our expert technician’s inspection report for comprehensive information on the condition of the vehicle.

· Paying Off the Outstanding Amount

It is the rule that you only complete the purchase and pay the seller once you have received proof that the loan on the vehicle is paid off and lienholder/s has deferred all ownership of the vehicle. If the lienholder is a bank and/or any financial institution, it will only release the title once all payments have been verified. The seller is then required to present the title to the DMV to have the lienholder removed from records. It is prudent to proceed with the transaction only after receiving confirmation that the seller has completed the DMV process.

There are two ways to complete outstanding payments and secure the title of car.

· Using an Escrow service

Some sellers might be cash strapped that they might not be able to pay-off the loan prior to the sale and need additional time. In such cases an escrow account can be used to handle the transaction. Quality escrow services will insure your purchase and monitor that the seller does not default on payments to the lienholder.

Using an escrow service reduces the intrinsic risk in purchasing a financed car. They ensure that funds are not completely available to the seller until all post-purchase terms have been met. Further, they can also liaison between the seller and the lienholder to protect your best interests and allows for quick and efficient title transfer.

· Paying the Lender Directly

The alternative is to pay the lienholder directly to release them off the title of the vehicle. In this scenario, the buyer may pay the lienholder directly in cash or write a check for the payment to release the title. The seller is then only owed the balance amount, once the buyer has completed all outstanding payments, as the price of the car. The

lender may choose to provide the buyer with the title documents directly in such transactions to close the deal.

· What would you prefer?

Using an escrow service is the most viable option when both the buyer and seller is cash strapped and need additional time. However, while it may be the most convenient solution for the moment, it can add up as an additional charge if there are any unexpected delays.

On the other hand, if the buyer has the funds and needs to close the transaction quickly, paying the lender would be the preferred option. However, the buyer needs to be aware that there are a few more hoops to jump down that path before securing the title from the DMV. This alternative mandates continued coordination and cordial relationship between the seller and buyer and demands more of buyer’s time and effort to clear the title and gain ownership. They buyer might feel that he/she is forced to invest more time and effort than initially anticipated.

· Waiting period

With the introduction of the Electronic Lien and Title system, the process has picked up pace. In most places, DMVs can now issue a new title certificate on the car within few days following the complete loan payment and title release. With paper titles, the lender will need to sign off on paper, and the process can thus take up to 5- 10 business days. Besides, if the lender is a bank or any financial institution, they will only realize the title to the seller ie. loan holder, who will then have to transfer it to the buyer, which might add a few more extra days.

The bottom line being, purchasing a financed vehicle can be a bit more complicated than the routine, but the deals are often worth the patience and planning!