Car Title Liens: Top 5 FAQ

If you’ve purchased a car using a loan, you have a lien on your title. Even though lien titles are very common, many people still have questions that aren’t answered by their lienholders. It can be difficult to get answers directly from lienholders, so we’ve compiled answers to the top 5 car title lien frequently asked questions for you.

#1: How do you check for a lien on a car title?

The easiest way to tell if there is a lien on a car title is to inspect the physical certificate of title. Listed on the front of the title next to or above the owner’s name will be the lienholder if the car has a lien. If there is no lienholder listed, there shouldn’t be an active lien on the car title. To double-check, obtain the VIN prior to purchasing and run a vehicle history check through an NMVTIS-approved provider. While these providers cannot reveal the lienholder or owner information, they can provide information on active title liens and state title history.

#2: How do you sell a car with a lien on the title?

Technically, you can’t. When you have a lien on the vehicle, the lienholder is the true owner because they technically paid for the vehicle, you’re just paying them back. Even though you’re driving it and your name is also on the paperwork, selling a car with a lien title is like selling someone else’s car. Before selling a car with a lien on the title, if the loan has been satisfied, you must get a vehicle lien release from your lender. If the loan hasn’t been satisfied and you still owe money, you must pay off the loan and obtain a vehicle lien release to clear the title before selling it. If you’re looking to sell your vehicle with a lien title, make sure to discuss this with your lender first to ensure all paperwork and transfer processes are done correctly.

#3: What is the difference between a loan and a lien?

The loan is the amount of money you borrowed from your lender to purchase the vehicle, the lien is the security interest your lender places on the title while the loan is active. If you default on the loan, the lien gives the lender the authority to collect the vehicle if needed.

#4: Can a bank revoke a loan on a car title after the contract is signed?

Yes, the bank can revoke your loan after you purchase the car and sign the paperwork. When purchasing a car, many dealers will have you sign a bailment agreement meaning that the loan looks like it will be approved, but it’s not totally finished processing with the bank yet. If in some set of circumstances the bank doesn’t accept your loan application, you have to bring the car back.

Why would the bank not accept your loan? There are a handful of reasons, such as a misrepresentation on the application by you or the dealership, the dealership assumed your credit was good enough, or the car doesn’t yet have insurance or meet the bank’s loan requirements.

#5: What do you do if you bought a car with a lien on the title?

Unless you see the title or run a VIN history report, there’s no way of knowing that a car title has a lien on it. Sometimes dealerships will have their own liens placed on their inventory if it was purchased at an auction or with a line of credit. Normally this lien gets paid off right away with the proceeds of the purchase, but there are instances where the dealership forgets to remove it, neglects to do it, or shuts down before they get the chance. If you’re purchasing from a private seller, it’s possible that the title they’re giving you is not the current title that reflects the lien. To remove a lien on your car title, you must receive a vehicle lien release from the lienholder. If you were not the original borrower, send the lienholder a letter of non-interest. The only way to remove a lien from a car title is to obtain a vehicle lien release or a letter of non-interest from the lender.

If you’ve purchased a vehicle with a loan, whether through a financing company or your dealer, then you likely have a lien on your title. Once your loan is satisfied, be sure to release your lien as soon as possible to ensure you have a clean title in your name. Until you request the lien release, the lien will stay on your title and in your lender’s name. If it’s your car, you deserve a title in your name. 

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