A car lien gives the lien holder, who is typically the lender for your auto loan, the legal right to your car up until the loan is entirely repaid. While it may not be a daily concern, having a lien on your car can affect various aspects of car ownership, including auto insurance requirements and the selling process. Whether you plan to buy or sell a car with a lien, it’s important to understand the implications and take the necessary steps for a smooth transaction.
Who Holds a Lien on a Car?
Typically, your auto loan lender is the lien holder on your car and may possess the car title. Depending on your state, the lien holder will file the lien with the state’s transportation agency or Department of Motor Vehicles. Once you have repaid your car loan, the lien holder will usually send a lien release document to the state transportation agency to update the car title and transfer it to you.
As the legal owner of the vehicle, the lien holder has certain rights. They can repossess your car if you default on the loan. To protect their interests, lien holders may require you to maintain specific types of auto insurance coverage, such as comprehensive and collision coverage, until the loan is paid off.
In some states, mechanics can also place a lien on a car. When mechanics perform work and are not paid within a specified period, they may have the right to place a lien on the vehicle.
How to Buy or Sell a Car with a Lien
If you are purchasing a used car from a private seller who has not fully paid off their loan, you will typically not receive the car title until the seller settles the loan and the lien holder transfers the title.
Likewise, if you plan to sell your car, you will likely need to pay off your loan to obtain the title, which can then be transferred to the buyer.
In non-title-holding states, you will have possession of the title, not the lien holder. However, the lien holder’s information may still appear on the title, and you may need to follow specific procedures to release the lien once the loan is paid off. For example, in New York, the lender should provide a release of lien document when you pay off your car loan in full, which must be attached to the title before selling the car.
If you cannot afford to pay off your car before selling it, you can contact your lien holder. The buyer may be able to make the check for the remaining loan amount payable to your lien holder to settle the loan and, in return, receive the car’s title.
Where to Find Lien Information
Before purchasing a used car from a private seller, it is crucial to check its lien status. Here are a few ways to obtain this information:
1. Check with your state’s transportation agency.
Some state DMV websites allow online lien searches using the car’s vehicle identification number (VIN). The VIN is a 17-digit number located on the lower left side of the windshield, inside the hood, on the engine, or where the driver’s side door closes. It can also be found on the car’s registration card and insurance documents.
2. Review the car title.
If there is a lien on the car, the title might indicate the lien holder.
3. Obtain a vehicle history report.
A vehicle history report can provide a lien history and essential details, such as odometer readings, previous owners, and major damage. Reliable sources for vehicle history reports include the National Motor Vehicle Title Information System, AutoCheck, and Carfax.
Conclusion
In conclusion, it is essential to be aware of your car’s lien holder (if applicable) and any associated requirements, such as mandatory insurance coverage. When buying a car from a private seller, always check for liens and communicate with the seller or lender to ensure a smooth transfer of the title.