If you’re thinking about buying or selling a car, you must understand car liens and what to expect if you’re buying a car with a lien. For someone who’s never bought a car before, it can be confusing. To start with, there are different types of lien, so it’s important you know what they are.
We like to help our customers as much as we can, which is why we decided to write this post. Keep reading to learn more about car liens and what you can expect if you want to buy or sell a car with a lien.
What is a Car Title?
To help you understand what is a lien on a car, we’ll start by explaining what a car title is.
A car title is one of the important pieces of paperwork required when you purchase a new car. It’s a legal declaration stating who owns the vehicle.
When you buy a car, it has to be registered under your name at your local DMV. However, if you purchase the car using finance, the lender holds a lien on the car until you’ve repaid the loan.
What is a Lien on a Car Title?
A car lien is an insurance policy for the lender. It makes sense that they want to ensure they’re protected should you default on your loan. They use car liens to ensure they have the protection they want.
When you purchase a car it has a lien on the title until you have paid for the car in full. However, a lien doesn’t just act as insurance for the lender. It also allows a creditor to repossess your car if you fail to keep up the payments and default on your loan.
When answering the question “What is a lien title on a car?” it’s important to stress that it’s a right against property or a legal claim.
Different Types of Liens
There are several different types of liens you need to be aware of:
- Consensual liens
- Financing lien:
- Mechanic’s lien:
- Statutory liens
- Construction liens
- Tax liens
A consensual lien is one that you agree to. A consensual lien on your title means you agreed to the loan terms and conditions and are willing to make the necessary payments.
A financing lien is created when you take out an auto loan to finance your car purchase rather than paying for the car in full. The lien is held by the auto loan provider. It might be a bank, car dealership, or lending company.
What is a mechanic’s lien on a car? It’s when a mechanic places a lien on a car if the repair or maintenance bills aren’t paid. The lien remains on the vehicle until the bill is settled.
A statutory lien is one that was obtained through the court because of unpaid bills. A tax lien is a type of statutory lien. Another example of a statutory lien is if a contractor was never paid by a homeowner for some work that they did. The contractor can file for a statutory lien against the homeowner.
A construction lien is filed against a property owner who failed to pay a contractor for some work they did. Such a lien can be awarded if a home renovator or plumber isn’t paid for a job they completed.
A tax lien can be taken out by any taxing authority such as a state or IRS. Tax liens are typically filed when a taxpayer fails to pay their taxes. However, before the authority can file a lien, the individual must be notified.
Can an Individual Be a Lienholder on a Vehicle?
It’s not just financial institutions that can be a lienholder. A lienholder is anyone who holds a legal interest in the vehicle until the vehicle’s loan is paid off. It could just as easily be an individual or a third party.
Admittedly, in most cases, the lienholder will be a financial institution, but it might also be an individual such as a family member or friend. They will be lienholders if they previously had possession of the vehicle and you’re paying them in instalments for the vehicle. They might also have purchased the vehicle on your behalf and you’re repaying the money.
In both cases, the lienholder who is an individual, in this case, holds the vehicle’s title until the loan is paid off. You then become the sole owner of the vehicle.
How Long Does it Take to Get the Car Title After Paying Off Your Loan?
It varies from state to state, but in general, it takes approximately two to six weeks after paying off a car.
There are various variables such as the time it takes for individual state processes and for the lienholder to send notification that the loan has been paid off.
Once you’ve repaid your loan, contact your BMV or DMV to find out the process for transferring the title to you as the sole owner.
Non-Holding vs. Title-Holding States
How you get your car title depends on whether the state is a non-holding or title-holding state.
Non-holding states allow borrowers to be listed as the primary owner of the car. The lender, or lienholder, is listed separately. Once your loan is paid off, the lienholder sends you an official release of lien letter. This must be taken to your local BMV or DMV with your current title. You then have to apply for an updated title.
In a title-holding state, the lienholder is listed as the primary owner on the title. They keep the title until your loan is paid off. Your name is mentioned in the title, but separately. Once your loan is paid off, you’ll be provided with a notification of the ownership change either by Electronic Lien Title (ELT) system or Manual (non-ELT) notification.
Loan Payoff and Your Car Insurance
Lienholders are listed on auto insurance policies. Once you’ve paid off your loan, you must let your auto insurance know about the change in ownership. The lienholder can be removed once your loan is repaid.
Is it Possible to Buy or Sell a Car With a Lien?
There’s nothing to stop you from selling or buying a car with a lien, but there are some things to be aware of.
Buying a Car
It’s possible to buy a car with a lien against it. However, if money is still owed on the loan, the owner has to pay the outstanding balance before you can get the vehicle’s title.
You should never pay money to the vehicle’s owner until they’ve proved that the balance of the lien has been settled.
If the owner fails to pay their debt, the lienholder still has a legal interest in the vehicle. You could end up paying the outstanding balance yourself.
Selling a Car
If your car has a lien against it and you want to sell it, you must settle the outstanding balance with the lienholder. Until the loan is paid, you can’t transfer the title to yourself which means that legally, you don’t own the car.
Where Can You Find Lien Information?
Before you purchase a car from a private seller, you must check its lien status. There are several ways you can do this:
- Check with your state’s transportation agency: You’ll find that some DMV websites offer an online lien search option. You simply enter the car’s vehicle identification number (VIN). The VIN is a 17-digit number you’ll find on the lower left side of a car’s windshield, on the engine, where the driver’s side door closes, or inside the hood. You might also find it mentioned on the car’s registration card and insurance documents.
- Get a vehicle history report: A vehicle history report provides a lien history along with key info about the car. Vehicle history report providers include Autocheck, Carfax, and the National Motor Vehicle Title Information System.
- Look at the car title if you can: Ask the owner for the car title because it might list the lien holder.
If you’re reading this post, you’re likely going to be buying a vehicle sometime soon. Finding your dream car can be a challenge, but you don’t have to restrict your search to the state where you live.
Thanks to the internet, it’s much easier to find your dream car, even if it’s across the other side of the country. Thanks to auto transport companies like USTrans.com, buying a car thousands of miles away doesn’t have to be an issue. We can arrange to ship your car from the seller to your front door, and it won’t cost an arm and a leg.
A lien holder is anyone who holds a legal interest in a vehicle until a loan is paid off. It might be an individual, third-party, or financial institution.
A lien release can take place when a debt is fully repaid. The lender confirms the loan has been paid in full and requests that the lien is removed.
A lienholder on a car is a lender, third party, or individual who has a legal interest in the car because they lent the owner money to purchase it.
A lien sale on a car is the sale of the claim placed on the car to satisfy an unpaid debt. Typically, lien sales are conducted as public auctions.