Who Will Escrow a Car Title Transaction?

A car title is a legal document that gives you ownership rights to a vehicle and all the responsibilities that come with it. The state where the buying process takes place usually issues the documentation, which accompanies the car for the rest of its life. However, every time the car is sold, a new car title must be issued officially.

Think of the car title as you would a renewable birth certificate of sorts. It contains the vehicle description, such as the VIN, color, make, year and model. It also includes the owner’s name and address, odometer readings and any outstanding liens on it. Also, it must include the signatures of a state representative, as well as the buyer and seller.

Sometimes, you may need a third party to facilitate a car title transaction to ensure everyone sticks to the agreement. In such cases, it would be wise to get an escrow service for car sales.

​Read More​: Used Car Buyer's Checklist

An escrow is a legal arrangement that authorizes a third party to hold an asset or money on behalf of the other parties taking part in a transaction. These assets would be released once everyone fulfills their end of the bargain. Using an escrow account increases the safety of a transaction and makes it less likely for people to be scammed.

So, how does escrow work when buying a car? Well, the process is pretty simple.

First, the buyer and seller come to an agreement about the terms and conditions of the car sale transaction. Second, the two parties engage an escrow service provider who will then accept payment and verify it. Third, the seller delivers the car using the agreed-upon method and provides proof of delivery. Once the buyer accepts the car after inspecting it, they must inform the escrow service provider, who then releases the funds.

In some cases, the escrow service provider also holds the car title and would be responsible for transferring the title to the vehicle buyer once payment has been received and verified. That usually happens for cars with liens on them.

Below are the parties that may also escrow a car title transaction.

American banks are the biggest lenders as far as auto loans are concerned. That means a significant chunk of American car sellers do not hold the car title. As a result, many banks are involved in used-car purchases where they have a stake.

Therefore, if the car seller owns a car with a bank lien, the bank can act as an escrow. When the buyer pays for the vehicle via the financial institution in question, the bank will take its share based on the remaining part of the loan. Afterward, it will distribute any money left over to the car seller. And then, it will give a clean car title to the buyer to complete the sale transaction.

A car dealership can act as the third party in a car sale arrangement if you intend to trade in your car and it has a lien. The car dealer will likely pay the remainder of the loan to acquire the title and factor in the cost of that payment when giving you a new car during the trade-in.

In such a situation, the trade-in value of your car will decrease or the cost of getting a new car will increase. That means you have to come up with the difference as a down payment or roll the vehicle acquisition costs into the new car loan. And the car dealer may help you obtain the financing you need.

When you have a car with a lien, you will temporarily act as the car buyer while the lienholder acts as the car seller. The lienholder releases the car title to the car dealer, who then uses it to sell your old car and obtain some of their money back after you perform a trade-in transaction. The car dealership will act as the escrow account.

And then, once you complete your current auto loan payments, the new lender must transfer the car title to you. Alternatively, if your vehicle’s trade-in value is pretty high, you can use it to acquire a cheaper car and obtain the title from the car dealership shortly after.

​Read More​: How Do Car Trade-Ins Work?

Professional escrow service providers, such as escrow.com, act as a third party in car sale transactions. And you should always consider an escrow for buying a car out of state. They are usually online and can be accessed from anywhere.

So, is escrow.com legit? Well, you can always read escrow.com reviews to determine whether the platform will work for you. But it is one of the largest escrow service providers around. And remember that there are escrow.com fees to deal with. However, you can also explore other online alternatives.

To determine what kind of car escrow service cost you would pay, you should use the available online calculators. For example, escrow.com charges standard fees of $162.50 for a car sale worth $5,000.

If a dispute arises, escrow service providers have agents to deal with it based on the terms and conditions. So, it is important to stick to your sale agreement.