It’s important to understand how liens work before taking out any loans or purchase cars so that all parties involved know their rights and responsibilities should any payments for those transactions fall through.
What is a Lien on a Car?
A lien on a car is a legal claim that an individual or a business has against the vehicle.
Liens usually occur when a debtor has yet to repay a loan secured by the car, such as an auto loan or title loan. In this case, the lender has the right to repossess the vehicle if the debt is not repaid in full. If the car is sold by either party during this time, the proceeds must go towards satisfying the outstanding debt first.
What Is A Lienholder?
A lienholder is an individual, business, or other entity to whom a borrower has pledged collateral to secure repayment of a debt.
In the case of a car loan, the lienholder will hold the title to the vehicle until it is paid in full. You can find your lienholder information most commonly simply by looking at your car title. The role of a lienholder should not be confused with that of a lender or creditor.
A lender may provide financing but will not retain actual possession of the collateral; instead, they can register their interest by filing and recording a lien against it with state or local government agencies. This protects their interest in the property and ensures that if for any reason the debt is not repaid, money can be recovered by selling that collateral.
What Is A Lien Title?
A lien title is a document that shows proof of ownership where a person or institution holds legal claim to an item.
This can include a wide range of items including cars, boats, and houses. In the instance of car loans, these titles are typically issued in situations a vehicle is being financed. You will see a lien on the title of a financed car because the driver does not legally own the car outright until their loan is repaid in full.
In order for someone to transfer ownership of an asset with a lien title (like selling a car), all lienholders must first agree to release their claim on it.
Once all lien holders have been satisfied and their claims released, a new clean title will be issued without any liens attached.
What Is A Lien Release?
A lien release is an official document that serves as formal proof that a car loan has been paid in full.
It shows who currently owns the title of the vehicle, and allows you to register it with your local state motor vehicle agency (DMV). In simple terms, a lien release works like a receipt for a car loan – once it’s signed it legally clears the debtor from any further obligation from the lienholder and creditor.
Without the lien release, you won’t be able to register your vehicle, or renew tabs on your license plates so make sure to get one before finalizing your payment. If you are borrowing money to purchase a vehicle, request this document from the lender before making the last payment and keep it neatly filed away for future reference.