Key Takeaways:
- A car title shows legal ownership of the vehicle
- Lenders can repossess a vehicle if you miss payments
- Mechanics and other companies can put a lien on your title
- You must have a lien release before selling your car with a lien
A lien on a car title means you can’t sell the car, and the lienholder can take the car if you don’t satisfy the agreement. Sometimes, a lien is a primary stake to any funds received for the asset, such as when you sell the car.
You can typically not use the car as collateral for financing until you have removed any existing liens. Knowing how a car lien works and getting it released is important so you understand what you can and cannot do with your vehicle.
What is a Car Title?
A car title is a legal document that shows ownership of a vehicle and includes information about the owner and vehicle. It’s different from the registration, which most states require to legally drive a car. A car title simply demonstrates ownership.
What is a Lien on a Car Title?
A lien on the title is a legal claim on the car. The lienholder is the technical owner, and is usually a bank or financing company that gave you the financing to purchase the vehicle. The lienholder has a secured interest in the vehicle and will until you repay the full loan amount. They can repossess the vehicle if you don’t pay as outlined in the loan agreement.
How Does a Car Lien Work?
When you purchase a car with financing, the lender will require that they are named on the title. They also keep possession of the title until lien satisfaction. This means you repaid the loan. Lenders typically require that you keep full insurance on the vehicle while the lien is in place.
Auto lenders file for a lien with the state’s Department of Motor Vehicles (DMV) until you repay the loan. You can drive the car and make any alterations while making loan payments.
How Long Does a Car Lien Last?
The car lien lasts until you make your last loan payment. Your loan agreement will be your loan’s end date. If you make all required payments on time, you’ll receive the title shortly after your last payment.
Who Can Put a Lien on Your Car?
The most common lien type is the auto lender lien. However, mechanics may also put a ‘mechanic’s lien’ on a vehicle. While the name suggests only mechanics can put these types of liens on your car, it applies to many situations if you don’t pay your bill, including:
- Car storage
- Towing
- Car part companies
In emergencies, you may also qualify for a second lien title loan. This loan against your car’s collateral provides you with emergency funds. If you qualify, you’d have two liens on your car.
Is a Lien the Same as a Loan?
A loan and lien go hand-in-hand, but they are different. A loan is the debt you incur to purchase the vehicle. You get a loan from a bank, credit union, or online lender. A lien is the collateral for the loan or the guarantee for lenders if you don’t make your payments.
Is a Lien the Same as Ownership?
A lien is the right to make a legal claim against the vehicle. It’s not the same as ownership. When you purchase a vehicle, you are the owner. However, if you finance the car, the lender is the lienholder and can take the car if you don’t follow the agreement.
Can you Sell a Car With a Lien?
You can sell a car with a lien, but you must first satisfy the lien. The lienholder has the primary claim on any money paid for the vehicle. For example, if you borrowed an auto loan for a vehicle purchase, you must pay the loan balance before selling the car. This is the case whether you sell the car to a dealer or a private buyer.
Before selling your car, contact your lender or any other lienholder for a payoff amount. This is the amount you must pay them before they release the title so you can transfer it to the new owner.
If you don’t have the cash to pay off the loan, here are some options:
- Ask the lender if the buyer can pay them directly for the amount of the outstanding loan
- Find a borrower that will pay some money upfront for you to pay off the lien before the sale
Consider a title loan if you’re experiencing a financial emergency and can’t sell your car to satisfy it. It’s rare, but in certain situations, you may qualify for a title loan with a lien on the title.
How to Check if There is a Lien on a Car
Before buying a car from a private seller, ask to see the title. If the owner doesn’t have it (most states require lenders to hold them) or they have it but the owner’s name is the lender, there is a lien on the title.
If you’re serious about purchasing a car, it’s worth investing in a full VIN check from CARFAX or AutoCheck to ensure the title is clear, or you may check your state’s DMV website.
How to Get a Lien Removed from a Car Title
Most lenders automatically release the lien on the title after you pay the loan in full. Each state has different laws regarding how long the lender has to issue the clean title. Some lenders automatically apply for the lien release, and the DMV sends you the new title.
Lenders that don’t participate in electronic lien releases will create a lien release document and send it to you with the old title. It’s your responsibility to take the lien release and title to the DMV to get a new title issued.
Final Thoughts
A lien on a car title isn’t the end of the world; it usually helps you purchase the vehicle. The key is keeping up with your loan payments and understanding the consequences if you don’t. You can’t sell a car with a lien on it, so you must satisfy the lien first.
Written by
Samantha Hawrylack
Samantha Hawrylack writes for our company and is an expert in personal finance. Sam received her Bachelors of Science in Finance and her Masters in Business Administration from West Chester University of Pennsylvania. She began her career in the financial services industry and shifted to an entrepreneurial role where she could directly impact clients. Sam has an impressive background in personal finance and business management.