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Lien On A Car: What Is It?

If you’re interested in purchasing a car with a loan, a lien is a part of the process that you shouldn’t ignore. While it may be difficult to wrap your head around at first, the lien on a car can have a significant impact on your car ownership journey. Hence, before you close that deal, it’s time to learn the ins and outs of car liens!

What is a Car Lien?

Think of car liens as insurance policies for lenders when you take out a loan to purchase your new car. Lenders use car liens to ensure they’re protected, in case a client defaults on the loan (breaching the loan contract by failing to make principal or interest payments). The car you purchase with said loan will have a lien on the car title, preventing you from receiving it until you pay off the loan to completion. If you default on the loan, you’re opening yourself up to severe consequences, because the lien on your car allows your creditor to repossess the vehicle when you do so. On the positive side, if you have poor credit, paying off your car lien can help you to rebuild it, and most of them offer lower interest rates.

Buying or Selling a Car with a Lien

When buying a used car, you don’t want any strings attached, so you should ask the salesperson if the car you’re eyeing has a lien on it. If so, the dealership will usually handle the paperwork to transfer the title to you. However, if you’re buying a car second-hand from a private seller, you’ll need to check the car’s lien status yourself. In most cases, the seller needs to pay off their auto loan to arrange for the lienholder to transfer the car title to you.

Checking Lien Status

Before closing the deal with a private server, it’s important for your safety that you check the car’s lien status. Depending on your state, your local DMV website can help you to conduct lien searches as long as you have the car’s vehicle identification number (VIN), which you can find on certain documents such as the car’s registration card, insurance documents, or located on the car itself. Most importantly, you should request a vehicle history report through a provider, as they provide much more information necessary for a car buyer to know before making a purchase beyond lien status, such as odometer readings, major damages, and previous owners.

Releasing the Car Lien

The easiest way to get a lien lifted from the car you’re buying is to have the seller pay off their auto loan to free up the car title for you to obtain a lien release. If the lienholder is a failed bank or its subsidiary, you can obtain a lien release by submitting a request to the DMV or the lienholder. If not, you may have to rely on your lender to communicate with your seller’s lender to complete a lien-free title transfer. Hence, it’s important to ask your lender about their policies and protocols for when a vehicle has a lien on the title.

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