What you should know

• A lien on your car title typically happens when you take out a loan and use the car as collateral..
• A lienholder is a financial institution, private party, or insurance company with a legal claim to your vehicle.
• Lien types can be voluntary (accepted by the owner) and involuntary (imposed due to unpaid obligations).
• A lien release is a document the lienholder provides confirming the loan is fully paid, allowing for title transfer.

What is a Car Lien?

The literal meaning of lien is exercising a legal right on an asset to another person until that person fully pays off the debt. For car liens, the asset is your vehicle, and the lender becomes the lienholder on your car title. Having a lien on your car title isn't bad; it only means that someone else – typically a lender – has a legal right to your vehicle because you owe them money. Remember, different places have different rules about liens on car titles, so it's good to check the laws where you live.

Types of Automotive Liens

There are two main types of liens: voluntary and involuntary.

Voluntary Liens

A voluntary lien happens when you choose to use your car title as collateral for a loan. Collateral is something of value that you pledge to a lender in case you fail to pay back your loan. Here are some examples:

• Mortgages: Think of it as a lender's promise to hold onto a property until the borrower fully pays off the loan.
• Car Loans: A type of loan where you use your car as a guarantee to help secure the financing.
• Title Loans: A title loan is a short-term loan where you use your vehicle as collateral.

Involuntary Liens

These liens happen without permission because of unpaid bills or debts. Below are a few examples:

• Statutory Liens: These legal claims can occur when someone doesn't pay their bills, like taxes. If you don't pay your taxes, the government can put a lien on your stuff, including your car. Even if you didn’t agree to a lien, the law enforces these liens so the creditor or government can secure their debts.
• Mechanic's Lien: Mechanic liens happen when you don't pay a repair shop for work done on your car. If you don't pay them, they may be able to file a lien on your car, which can cause problems for you later if you want to sell your vehicle.
• Child Support Lien: A lien may be recorded against your vehicle if you owe child support. This lien restricts the transfer of the title to a new owner until the owed amounts are settled.

Role of the Lienholder

A lien on a car is a legal claim that a lender has on the vehicle. This usually happens when someone borrows money from a bank or credit union to buy a car. The lender, the lienholder, has a financial interest in the car because they helped pay for it.

When the loan is taken out, the lienholder has a lien on the car's title until the borrower pays back all the money owed. If the borrower can't make the loan payments, the lienholder can take the car and sell it to cover all or a portion of the amount still owed to them.

Sometimes, the lienholder has some rules for the borrower, too. They might require the borrower to have auto insurance, ensuring any damage is covered since it's still the lienholder's asset. Once the borrower pays off the loan, the lienholder provides a document called a lien release. This document clears the car's title, so the new owner has full ownership without any claims against it.

How to Check for a Lien

Before buying a used car from someone else, check for a lien. You can visit your state's transportation agency. VINClarity is an online service where you can obtain vehicle information by entering the car's Vehicle Identification Number (VIN).

You can find a car’s VIN easily. On the driver's side, look at the corner of the dashboard where it meets the windshield—that's usually the best spot to find it. If you're having trouble locating it there, don't worry. Open the driver's side door and check out the door post, where it latches when closed. You'll probably spot the VIN there, too.

A vehicle history report helps tell you important things about a car. It can show if there are any liens, if the vehicle has been damaged before, or if the odometer reading is correct. These reports are found online from the National Motor Vehicle Title Information System (NMVTIS). Just click on one of the links to an approved NMVTIS Data Provider. You can enter the car's VIN to get the information you need. If you find out there’s a loan on the car, it's a good idea to ask the lender for their contact info.

Can You Sell A Car With A Lien?

Selling your car with a lien on it is not much different than buying. In both cases, the seller will want to have the loan paid off to get a clear title before buying. You can either sell through an auto dealer or sell the car privately with a lien. In the former, you do not have to worry much, as the dealer will take care of all the work and deal with your lending company, whereas, in the latter case, you will have to do everything on your own.

You must find a buyer and disclose all pertinent information about the car, including the lien. Remember, the lienholder has the first right over the sales proceeds. If you want to sell your car first or are unable to pay the loan, you will have to contact the lienholder and make some arrangements. In this case, if the buyer agrees to pay the remaining loan amount on your behalf, you can easily proceed with the car title transfer.

Discover more: How Can You Get a Title Loan With a Lien on Your Car?

How A Car Title Release Works

Depending on your state, removing the lienholder from the title and transferring ownership to you or the new buyer may vary. However, usually, the process involves the following steps:

• Pay off the money you owe to the lienholder in full
• The lienholder (lender) will prepare a lien release. Depending on the state, the lienholder may mail you the lien release or submit it electronically to your state’s motor vehicle department.
• If the lender sends you the lien release, you will need to submit it to your DMV along with any required documents and possible processing fees. Once processed, you’ll receive your clear title.
• If your state uses electronic titles, the DMV may automatically mail you a new paper title with the lien removed, or you may have to request it

The Final Word

A lien on a car may seem daunting, but with the right information, it becomes a manageable part of vehicle financing and ownership. Whether purchasing or selling a vehicle, performing due diligence is crucial. Always check the lien status, confirm that all debts are settled, and ensure your documentation is current. Grasping the concept of car liens is vital for making informed and responsible choices in the realm of car ownership.

So, as you move forward—whether you're excited about your new ride or gearing up for a successful sale—keeping these tips in mind will make everything feel smooth and stress-free. Remember, being open and detail-oriented is key; these qualities are your best friends when easily handling car liens.