If you have ever been shopping for a used car, or have ever applied for a car loan, you most likely have heard of a lien before. However, most consumers do not understand the exact definition of lien and what it entails.
Defining a Lien
Essentially, a lien acts as a form of “security” for the lender or whoever may have financed your car. If and when you take out an auto loan for a car, a lien becomes attached to the car through its title. A lien is designed so that if you default on the loan by failing to make multiple payments, the lien holder (usually your lender) has the right to repossess the car.
Having the right to repossess your car acts as a form of collateral for the lender. But how is a lien created? Typically, when you become approved by the lender for an auto loan and purchase the car with that loan, the lender will go to the DMV and file a lien against your car. The auto lender will most likely also keep possession of the vehicle title until you have paid off your loan balance.
When a Lien is Released
Once your loan balance is paid off, the lien can be released. Typically, this process can vary from location to location, but in most situations, the lien holder (AKA the lender) will send a release of lien document to your DMV. Once processed, the vehicle title will be changed to show that the lien has been released. Your local DMV will mail you a brand new title for the vehicle, and you are now the sole owner of the vehicle with a clean title.
Buying a Car with a Lien Title
If you are in the market for a used car, its best to be careful with any outstanding liens on any vehicles. If you do purchase a car with a lien title, you may be held responsible for paying off the previous owner’s loan balance yourself. If you avoid paying off the remaining balance, the lender may have the right to repossess the car even with you as the new owner.
Thankfully, there are a few ways you can see if the vehicle you are interested in purchasing has a lien title.
- Examine the title and see if the word “Lien” appears anywhere on the title, specifically in the vehicle status field. Some states do not require their titles to mention the lien though.
- Ask the seller if they financed the vehicle. If they answer yes, ask them to produce a release of lien document from their lender or their local DMV
- Use the DMV website to search for an outstanding lien. You can also do this by visiting your local DMV if you cannot find the search online. Typically this will require the vehicle VIN or vehicle identification number.
- Try using vehicle history checks with online providers. Besides showing you if the car has any outstanding liens, these services can also tell you if the car has been in any accidents along with any service records.
If you are in the market for a reliable car or are looking to replace your current car with something more reliable, you may be concerned about your credit score and its effect on your payments. CrediReady offers one of the largest databases that connects dealerships, lenders, and buyers in all credit situations. Take a few moments to fill out our free and confidential loan search form online and we will match you with a dealership in your local area that can meet your auto financing needs.