Can I Get a Car Loan With a Tax Lien?

Jill Bridges
Expert Contributor
Last Updated:
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  • Getting a car loan while you’re under a tax lien is difficult, but not impossible.
  • While dealing with a tax lien, any car loan that you’re approved for will usually require a large down payment and carry high interest rates.
  • Clearing a tax lien before applying for a car loan is usually the best idea if you want the best loan terms possible.

When the IRS places a tax lien, it can interfere with your financial standing in several ways, including lowering your credit score.

If you’re currently dealing with a lien, you might have a variety of questions, including whether or not you can get a car loan while your lien is still in place.

Luckily, it may be possible for you to get a car loan while dealing with a tax lien, although it will be a lot more difficult. Here are a few things you should know about getting a car loan under these circumstances, as well as some advice for dealing with your lien so that you can secure your financial future.

Image via Flickr by Got Credit

Credit Reports and Tax Liens

If you’ve ever applied for a car loan, then you know that a credit check is required before your loan is approved. Unfortunately, tax liens do appear on your credit report and can impact your credit score, meaning they can diminish your ability to secure a car loan.

Can I Get a Car Loan With a Tax Lien?

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The degree to which a tax lien affects your credit score depends on several factors:

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  • The scoring model used
  • The age of the lien
  • The amount still owed on the lien

If your tax lien is on the older side and the amount still owed is minimal, then the impact on your credit score will be less. On the other hand, a newer tax lien for a large amount may substantially lower your credit score, making it a lot more difficult to get a car loan from most lenders.

Just because there is a tax lien on your credit report, however, it doesn’t mean that you won’t be able to get a car loan. In most cases, lenders are reluctant to give loans to people with a tax lien because it demonstrates an inability to pay their back taxes. If your credit report is otherwise clean and your credit score isn’t too low, then you may be able to convince a lender to work with you.

Finding the Right Lender

If you’re dealing with a tax lien and are interested in applying for a car loan, the best thing you can do is to work with the right lenders. Many lenders specialize in loans for car buyers with poor credit, and they may be able to help you find a loan even if you have a lien on your credit report.

Make some calls to lenders in your area and ask them about their history of lending to car buyers with tax liens. If the lien is older and you’ve been making efforts to pay it off, be sure to mention these facts, as lenders will be more willing to work with you if they know that you are trying to clear your debts.

Down Payments and Interest Rates

Getting a car loan with a tax lien on your record can be difficult because your lender will want to protect themselves as much as possible. For instance, with a tax lien, you’ll usually need to pay a much larger down payment than you would otherwise. Because of the impact the tax lien has on your credit score, your down payment may need to be as much as 20 percent so that the lender is somewhat protected if you eventually default on your loan.

In addition to a larger down payment, your interest rate will also be a lot higher than it would be without a tax lien. Generally, you’ll be offered a sub-prime interest rate, which can be very high depending on the current prime interest rate. You should also expect the loan term to be a lot shorter than normal loans.

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Some car loans offered to car buyers with tax liens can be as short as 30 months. If you’re wary about agreeing to a loan with a short term and a high interest rate, then you may want to wait to buy your car until you’ve cleared your tax lien.

If you decide to go ahead and purchase a car while your tax lien is still on your credit report, look for a car with a low price tag. Buying a new car will be pretty much out of the question, so you should try to find an affordable used model. Finding a lower priced car will make it easier to pay off the loan.

Lastly, avoid accepting the first loan that you’re offered. Compare a few different loans before you make a final decision. While the terms of your loan won’t be as good as they could be without a tax lien, this doesn’t mean that you have to accept any loan for which you’re approved.

Dealing With a Tax Lien

If you have a tax lien against your property and want to apply for a car loan, dealing with the lien first is the best thing that you can do. For most people, the best idea is to request an installment agreement from the IRS. After the agreement is completed and your back tax has been paid off, the IRS should remove your lien and you can then request that it be removed from your credit report.

Applying for a Certificate of Discharge is another way to deal with a tax lien. With this option, the IRS would remove a lien from a piece of property so that it could be sold to cover your back taxes.

You could also apply to the IRS for an offer in compromise, which is a way to settle your back taxes. An offer in compromise is only an option, however, if you lack the resources to pay off your back tax.

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Solvable is here to help you reduce your back taxes and clear your tax lien. Visit us today for a free consultation and help in finding a company that will help you get out of back taxes so that you can get the car loan you need.


Jill Bridges
Expert Contributor
Last Updated: