Yahoo Autos Can You Buy a Car With a Lien?
You may have come across the term “car lien” while shopping for a car or trying to secure an auto loan. So what is a car lien and what role does it play in the car buying process? We have the important answers.
What is a Car Lien?
A car lien is a contract that gives the lien holder the legal right to a vehicle until the borrower pays off the loan in full. All vehicles that are financed have liens on them. That means that if you take out a loan for a vehicle, your creditor is the legal owner of the vehicle and is entitled to repossess the car if you default on your loan payments. In other words, a car lien is an insurance policy for an auto loan lender so they aren’t responsible for payments if the borrower fails to pay for their vehicle. Liens can be placed on both new cars and used cars.
Who Is the Lien Holder for a Car?
An auto loan lender is typically the lien holder on your car, and in most states is in possession of the vehicle’s title. The lender will usually file the lien with the state’s department of motor vehicles.
How Do I Obtain My Car Title After Paying Off My Loan?
When your auto loan is paid off in full, the lien holder is required to contact your state Department of Motor Vehicles (DMV) either electronically or by required paperwork. What happens next varies by state. Some states will automatically mail you your car title once your loan is paid in full. In other states, your financial institution will send you a lien release with documentation that the loan has been paid off. You will then have to visit the DMV to get your vehicle title and become the registered owner of the vehicle.
You can learn more about your state’s process by visiting your state DMV’s website.
Does Having a Lien on Your Car Affect Car Insurance?
Your car’s lien holder will likely require you to obtain certain auto insurance coverage in order to protect the creditor if the vehicle is in an accident, damaged, or stolen. Your lien holder may also appear on your vehicle’s insurance policy. After your loan is paid off, comprehensive coverage and collision coverage are likely optional and the lien holder can be removed from your policy.
Can I Buy a Car with a Lien?
If the car’s seller is unable to pay off their loan, they can sell the car while it still has a lien. If you’re considering purchasing a car with a lien through a private party, you’ll want to make sure that the lien is removed before you become the new owner. You can work directly with the lienholder to determine the payoff amount for the car, and you can either pay by cash or secure a loan through a lender. If you’re taking out a loan, your lender will complete the process of paying off the lien holder, and a loan for the vehicle will be placed in your name.
