- A lien on a car means a third party—known as a lienholder—has a legal claim to your car.
- Having a lien on your car means the lienholder could repossess your vehicle if you default on your loan.
- Refinancing your auto loan, budgeting, and asking for hardship assistance can help you stay one step ahead of loan payments and reduce the risk of losing your vehicle.
Having a lien on your car is common. Simply put, a lien is a way to lower a creditor’s risk after they lend you money to buy a vehicle. Liens can be held by people or organizations, ranging from private individuals to financial institutions. Liens are also impermanent, which means the lien on a car title can be removed—but only after you repay your loan.
In this guide, we’ll take a closer look at car liens. We’ll also discuss the different types of liens and how a lien can affect you and your vehicle.
First thing’s first: What is a lien on a car title?
A lien on a car is a third party’s legal claim to your vehicle. Liens can be partial or full. They are typically created when you finance a new or used car.
If you have a lien on your car title, you essentially “rent” your car from the lienholder. You can drive it and use it as you see fit. However, the lienholder is legally the owner of your car until you repay your loan and a lien release is processed.
What is a lien release on a car?
A lien release is a document that ends a lienholder’s claim to your property.
Though the process varies from state to state, the lienholder typically signs a lien release document after you’ve repaid your loan in full. Then, they send the document to your state’s department of motor vehicles (DMV) for processing. Finally, the DMV will transfer the title to you which means you own your car free and clear.
What is a lienholder on a car title?
A lienholder is any third party with a legal claim to your financed car. Typically, lienholders are car loan providers. A friend, family member, bank, or other financial institution may also be a lienholder.
Can an individual put a lien on a car?
An individual can file to put a lien on your car if they loaned you the money to buy the car. The guidelines may vary from state to state, however.
How does a lien work?
A lien provides an added layer of protection for the lender.
Think of it like this: When your lender loans you money to buy the vehicle, they want to feel confident you’ll repay them. A lien is created on your car to reduce the risk of you defaulting on the loan.
If you do default on your auto loan, your loan provider can repossess the vehicle to recover some or all of the money they loaned you.
Liens aren’t unique to vehicles. Virtually any type of property can have a lien placed on it, including your home.
Is a lien the same as a loan?
A lien isn’t a loan. Instead, a lien helps secure a loan by using the vehicle as collateral. If you’re unable to repay your loan as promised, your lender can take your car from you as payment for your debts.
A lien can come with additional stipulations as well. For example, a lienholder may require you to have certain types of car insurance coverage, such as comprehensive coverage or collision insurance, until you repay the loan.
Can I sell a car with a lien?
Technically, you can’t sell a car with a lien. Instead, you have to clear the title—or repay your debts—before you make the sale. There are 3 common ways to do so:
- Find a buyer willing to give you enough money up front to repay your auto loan and clear the title.
- Repay the loan in full and clear the title before you sell the car.
- Talk to the lienholder and determine if the buyer can pay them directly. If so, the new buyer may be able to repay the loan in exchange for the car title.
Alternatively, you may be able to sell your car to a dealership and use the money to repay your loan. That said, it’s important to do your research before selling your car to a dealership. Take some time to understand exactly how much you owe on your loan and your vehicle’s market value to ensure you’re getting a good deal.
How to buy a car with a lien title
It’s possible to buy a car with a lien, but it may be more complicated than buying a vehicle with a clear title.
For instance, you usually won’t be able to transfer the title to your name until the original owner finishes paying their loan. At that point, the lienholder will transfer the title to the original owner, who can then transfer it to you.
On the other hand, you may be able to pay the lienholder directly. That way, you can bypass the middle man—aka, the current owner—and have the title transferred to you.
Types of liens on a car
You may have one of several types of liens on your car, but the most common is a financing lien. A financing lien is created when you use an auto loan to finance your vehicle rather than paying for it in full. The lien is held by your auto loan provider, such as a bank, lending company, or car dealership.
The purpose of a financing lien is to ensure you repay your loan on time. Once you pay off your loan, the lien will be removed. Then you will own your vehicle outright.
Other types of liens include:
- Operation of law liens: These are placed on your car title in the name of upholding the law. An operation of law lien can take many forms. For instance, you may receive an operation of law lien for failing to pay court fees or parking tickets.
- Child support liens: In some states, child support enforcement agencies may place a lien on your vehicle if you don’t pay child support as promised. Typically, the lien is equal to the amount of child support that’s gone unpaid, though rules vary from state to state.
- Mechanic’s liens: Finally, a mechanic may be able to place a lien on your car if you don’t pay for repair or maintenance services. The lien will remain on your vehicle until you settle your bill. Mechanic’s liens apply to more than just cars. Contractors and repairmen can place these liens on your home or another piece of property if you don’t pay them for their work.
Does my car have a lien? How to find car lien information
Whether you’re preparing to buy a used vehicle from a private seller or want to check your lien information, you’ve got a few options:
- Look at the car title. If you have the car title on hand, you may be able to determine if someone holds a current lien on the title.
- Check with your state DMV. Some DMV websites allow you to search for liens using your car’s information. Typically, you’ll need your vehicle’s identification number, or VIN, to begin the process.
- Request a vehicle history report. Vehicle history reports may provide a lien history along with details like prior damage and odometer readings. To request a vehicle history report, you can check out providers like the National Motor Vehicle Title Information System, Carfax, or Autocheck.
So you have a lien on your car. What’s next?
If you have a lien on your car, don’t panic. It simply helps protect your loan provider if you default on your loan. Liens aren’t permanent, either. After you repay your loan, your lienholder will release the lien and transfer the title to you. Then, you can keep your vehicle or sell it as you see fit.
However, we understand that life happens and sometimes it’s hard to keep up with your car payments. If that’s the case, your lienholder has the right to repossess your car.
Luckily, there are some steps you can take to prevent that from happening.
You may talk with your loan provider to discuss a temporary solution, like a hardship assistance program. These may reduce or pause your payments temporarily, allowing you to get back on your feet. It’s also a good idea to take a close look at your spending and create a budget that allows you to make your payments on time.
Finally, consider the terms of your auto loan. If you’re stuck in an upside-down car loan or accepted financing with a sky-high interest rate, refinancing your auto loan could help reduce your monthly payments and get you back on track.
Car refinance loans not available in MD and NV.