Persistent prompt for password to unlock disk

Since I'm not certain how this pre-owned laptop was set up I would only recommend backing up your data.

I would recommend to also create a bootable macOS USB installer so you have more options if something goes wrong.

https://support.apple.com/en-us/HT201372

I also highly recommend to configure the Startup Security Utility settings to allow booting from an external USB drive (aka media) before erasing the drive and trying to reinstall macOS as it is impossible to boot from USB once you erase the drive as you will be unable to authenticate with the Startup Security Utility if the SSD has been erased and your only option at that point is Internet Recovery Mode which for some users may not be an option if there are networking issues (bad WiFi, bad/slow Internet, data caps, etc.). I'm a bit paranoid so I would also choose to select "Medium" security as well so that I have more options if something goes wrong.

https://support.apple.com/en-us/HT208198

These 2018+ Macs with the T2 security chip can be an absolute pain to work with so it is best to try and properly prepare beforehand while the system still boots. Even all this planning may not be enough in some cases.

Did you use Disk Utility to erase the whole physical SSD before installing macOS? Recent versions of Disk Utility now hide the physical drives from view so you must jump through hoops to reveal the physical drives. Within Disk Utility click on "View" and select "Show All Devices" so that the physical drive(s) appear on the left pane of Disk Utility. You want to select the physical drive which should be called something like "Apple SSD....". Erase it as GUID partition and APFS (top option).

https://support.apple.com/guide/disk-utility/erase-and-reformat-a-storage-device-dskutl14079/mac

If this doesn't work, then you may need access to another Mac to run Apple Configurator 2 to "Restore" the T2 firmware and try performing the clean install of macOS again.

https://support.apple.com/guide/apple-configurator-2/revive-or-restore-an-intel-based-mac-apdebea5be51/mac

Personally I would not buy a pre-owned Mac these days (except direct from Apple) as it is just too risky for a multitude of reasons (this being one of them).

Make sure to have a good backup before attempting any of these things.

I popped in, again, to explain further, so I'll do it as a reply to you. Some of this you probably know, and most is intended for shameer0786.

The OS is now split into two volumes, one for the OS and one for data and third-party software.

If you reinstall without removing the old - Data volume, you will end up with a new one. The old one just becomes another volume which is mounted to /Volumes. The true Data volume is mounted to /System/Volumes/Data.

The symptoms presented look to be an orphaned Data volume from the previous owner who did have FileVault enabled. The orphaned volume is encrypted, hence it asking for the password to decrypt and mount. The previous owner probably just erased Macintosh HD, not knowing his data was on the Macintosh HD - Data volume. At least it was encrypted.

One thing I missed previously is having the old AppleID still somehow attached to the Mac. So, I definitely recommend erasing the drive completely as you suggested at the outset.

You likely just have the orphaned Data volume still on your Mac.

I would also suggest erasing a used Mac before use, but if you are happy with the reset otherwise, you can Remove the orphaned - Data volume in Disk Utility.

It will be the grayed out (uncounted) volume.

A previous owner did not properly disassociate their AppleID from this laptop. There is nothing you can do here as only the previous owner is able to disable FindMy from their AppleID.

FYI, here is what the previous owner should have done before selling the laptop.

https://support.apple.com/en-us/HT201065

Or this laptop may be stolen.

Return the laptop and get your money back.

I sense this is Firmware Password issue. They talk about FileVault was turned off and bought it Used. Perhaps the previous owner did not remove Firmware Password before selling. If that is correct - they are in a real jam.

Is this FindMy notice for your own AppleID? If not, then the previous owner still has "control" over this Mac where the previous owner could remotely lock this Mac so you could no longer use it.

Yes, assuming you have a backup to restore from, or you don't care to restore your data.