What is a Lien on a Car?

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Meghan Carbary has been writing professionally for nearly 20 years. A published journalist in three states, Meghan honed her skills as a feature writer and sports editor. She has now expanded her skill-set into the automotive industry as a content writer for Auto Credit Express, where she contributes to several automotive and auto finance blogs.

, - May 19, 2021

A car lien is a standard part of the process when you're financing a car. If you need to know what they are, if they apply to your situation, and how you can remove them if you're buying or selling a vehicle, we've got the lowdown for you.

What's a Lien?

Merriam-Webster dictionary defines a lien as: "a charge upon real or personal property for the satisfaction of some debt or duty, ordinarily arising by operation of law." What this means is that your lender has rights to your vehicle until you've satisfied your loan debt.

A lien is issued by your lender when you finance a vehicle, so your lender is the lienholder. Whether you finance a car through a dealership or buy one from a private party with a direct loan, the lender has rights to it until the entire balance is paid. When a vehicle has a lien on it, the lienholder is listed first on the title, designating them as the owner of that property until the loan’s completed.

The lien represents an insurance policy of sorts for the lender. This is what gives the lender the right to repossess a car if you default on your auto loan, and it stops you from legally selling the vehicle until the loan is paid. Once you finish paying off your loan, the lien is released and you're typically sent a new title in only your name.

The method of getting a title after the removal of a lienholder can vary, so make sure you contact your local Department of Motor Vehicles (DMV) or Secretary of State for more details on the process where you live.

Types of Liens

In some rare cases, you can have more than one lien placed on your vehicle. This can happen for many reasons, including not paying other debts or failing to pay your taxes. The lien that's placed on your car when you sign the auto loan contract is considered a voluntary lien because you're agreeing to the contract, giving the lender the right to your property if you fail to meet the contract agreements.

Other types of liens are considered involuntary liens and are typically placed on your property without your permission, usually after a court order. These can include:

  • Mechanics lien – Though a mechanic’s lien can be placed on your title by a mechanic, this name is used as a general term when a lien is placed on your vehicle for failure to pay for a service.
  • Judgment liens – Judgment liens are court-ordered and can be sought by any creditor who deems it necessary to take you to court over failure to pay.
  • Tax liens – If you aren't paying your taxes, the Internal Revenue Service can place a tax lien on your property. This means your assets, including a vehicle can be liquidated to recover what you owe the government.

These involuntary liens give anyone who holds them the right to any money coming from the sale of your car. Let's look at an example of how having one or more liens on your vehicle can impact you.

For example: If you have a $5,000 auto loan on a used car that has to have a major repair done, such as a transmission or engine replacement, you may end up owing quite a bit. Imagine the bill for the service is $2,000, but the mechanic lets you drive off after a $500 payment and a promise to pay the rest on your next payday.

If you never make good on that promise, the mechanic or car dealership where you received service can ask for a court order to place a lien on your car. If they win, they're listed as the second lienholder on the car's title since your lender is the first lienholder.

If you then try to sell that vehicle, you may be in for a surprise. If you're offered $7,000 for the car, you might think you're getting a sweet deal – but in order for the dealership to get the title to the car the loan has to be paid, and all the liens must be cleared. The dealer purchasing your vehicle pays off the original loan for $5,000 and then pays the mechanic $1,500, leaving you with only $500 in your pocket to put down on another vehicle.

Removing a Lien

It's important to know how to find out if there is a lien or liens on your car, or on a vehicle you're considering purchasing. This is especially true if you're buying a car from a private seller.

You can check on liens through your state’s DMV, or by getting a vehicle history report through a service such as CarFax. Typically, all you have to do is provide the vehicle identification number (VIN) to get more information.

In most cases, a lien is removed when you complete your auto loan or pay off the service or judgment which caused your vehicle to have a lien placed on it. Fortunately, as shown in the example above, you can still sell or trade in a car with a lien, as long as the lienholder(s) are paid first.

Selling a Car With a Lien

When you're buying or selling a car privately, you can, and should, negotiate the payment of liens as a part of your sales contract. If there's a car that you really want, but there's a mechanic’s lien on the car, you can write two checks – one to pay to have the lien removed, and one to the seller any additional money over and above the lien amount.

If you're selling a vehicle with a lien privately, you should disclose up front that there's a lien on the car, and let the buyer know who has to be paid in order for them to get a clean copy of the title. Of course, if you want to avoid the hassle of dealing with lien removal yourself, you may want to consider selling or trading in your car to a dealership that can handle all the paperwork and title transfer for you.

You may think finding a dealer to work with is out of your reach, but think again! CarsDirect is here to help you find a dealership in your area to work with. Our nationwide network of special finance dealerships is equipped with lenders to handle many types of borrowers, including those with poor credit, no credit, and bankruptcy. To get started on your journey toward another vehicle get started right now by filling out our fast, free, no-obligation auto loan request form.

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Meghan Carbary has been writing professionally for nearly 20 years. A published journalist in three states, Meghan honed her skills as a feature writer and sports editor. She has now expanded her skill-set into the automotive industry as a content writer for Auto Credit Express, where she contributes to several automotive and auto finance blogs.

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