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What Is A Lien On A Car?

By PattyKay Lilley

A lien on a car is an interesting, little-discussed topic in the auto industry. When buying or selling a vehicle, understanding what a lien is – and exactly how it works – can be beneficial to both parties involved.

But what exactly is a lien on a car? To put it simply, a lien is when something of value has been used as collateral for another loan. In terms of vehicles, this means that one party has loaned another money for the purchase of the vehicle but hasn’t been paid back yet.

This creates a legal claim where the lender reserves the right to take possession of said vehicle if they don’t receive payment by an agreed deadline.

In this blog post we will dive deeper into what liens are and how they work within different scenarios related to motor vehicles in order to provide you with all the facts about liens so you can make more informed decisions regarding your purchase or sale!

What Is A Lien On A Car?

A lien on a car is essentially a safeguard for lenders in the car financing industry. When you finance a car, the lender holds the lien and becomes the lienholder until the loan is paid off. This scenario is also applicable to leased vehicles where the leasing company holds the lien.

The presence of a lien on a vehicle title signifies that the car is not fully yours yet. You may be in possession of the car and use it daily, but technically, the financial institution or party that loaned you the money owns the car.

In its simplest form, a lien can be seen as an insurance policy for lenders. They have the assurance that they can recover their money by repossessing and selling the vehicle should the borrower default on their loan payments. This makes auto loans less risky for lenders.

If you plan on selling a car with a lien, it’s important to be transparent about it. Potential buyers might be hesitant because transferring the title becomes more complex. The lien must be paid off before the title can be transferred to the new owner. If you’re considering buying a car with a lien, ensure you understand the repayment agreement to avoid potential complications.

In conclusion, understanding what a lien is and how it operates can help you navigate the car buying or selling process more smoothly. It’s always advisable to consult with a professional to ensure you’re making the best decisions for your situation.

What Is A Lien Release On A Car?

A lien release on a car refers to the document that shows that the lienholder, typically a financial institution, has released its legal claim on the vehicle. Essentially, it signifies that the car loan has been fully paid off. Once the borrower completes all the payments of the loan, the lienholder issues a lien release, which can either be a separate document or a part of the vehicle title.

This document is crucial, especially when selling the car, as it serves as proof that the vehicle is no longer under any financial obligation and the owner has complete rights to it. Without a lien release, transferring the title of the vehicle to a new owner can be complicated. It’s always recommended to keep a lien release safe and accessible because it plays an important role in demonstrating your full ownership and rights to the vehicle.

Is A Lien The Same As A Loan?

Is A Lien The Same As A Loan?

While the terms “lien” and “loan” are often used interchangeably in conversations about car financing, they are not the same thing. A loan refers to the act of borrowing money, typically from a bank or financial institution, with an agreement to repay it over a specified period with interest.

On the other hand, a lien is a legal tool used by lenders as a form of protection. In the context of a car purchase, when you take a loan, a lien is placed on the vehicle by the lender. This lien gives the lender the right to repossess the vehicle if the borrower fails to pay back the loan as agreed.

In essence, a lien is a consequence of a loan, acting as a safety net for lenders, not a loan itself. So while they are associated, a lien and a loan are distinctly different aspects of car financing. Understanding this distinction can be crucial when diving into the world of auto loans and vehicle ownership.

See more: Where Is The VIN Number On A Car?

How to Buy a Car with a Lien Title

Buying a car with a lien title can be a tricky process, but with careful planning and due diligence, it can be done. Here’s a step-by-step guide:

  1. Understand the Repayment Agreement: Make sure you comprehend the terms of the car loan and the repayment agreement between the seller and their lender. This will help avoid any surprise costs further down the line.
  2. Contact the Lienholder: Before proceeding with the purchase, get in contact with the lienholder. They’ll be able to confirm the outstanding balance on the loan. Ensure to get written confirmation of this amount.
  3. Make the Payment to the Lienholder, Not the Seller: When buying a car with a lien, the payment should be made directly to the lienholder. This ensures that the loan is paid off, and the title can be transferred to you, the new owner.
  4. Obtain a Lien Release: Once the payment has been made, the lienholder should provide a lien release. This legal document proves that the lienholder’s financial claim on the car has been fulfilled.
  5. Transfer the Title: With the lien released, you can now transfer the title of the vehicle into your name. The car is officially yours.

Remember that buying a car with a lien title can be more complex than buying a car with a clean title. Always consult with a professional to make sure you are making the best decision for your situation.

Types of Liens on a Car

There are typically two types of liens that can be placed on a car: voluntary and involuntary liens.

Voluntary Liens

A voluntary lien is agreed upon by the borrower and lender at the time of the loan origination. This is the most common type of lien seen in auto financing. When you finance a car, you agree to the lender’s terms and conditions, including the stipulation that they have the right to repossess the vehicle if you default on your loan payments.

Involuntary Liens

Involuntary liens, on the other hand, are liens that are not agreed upon by the borrower. These are typically placed on a vehicle due to unpaid debts, including unpaid taxes, unpaid repair bills, or in some cases, unpaid parking tickets. The creditor can place a lien on your vehicle, making it legally impossible for you to sell or transfer the title of the vehicle until the debt is paid in full.

Being aware of the type of lien on a car is crucial when considering to buy or sell a car. Always do your due diligence to ensure that you are fully informed about any liens attached to the vehicle you intend to buy or sell.


When it comes to car ownership, liens are a common area of confusion. It’s essential to understand the intricacies of these legal agreements, especially if you’re considering buying a car with a lien or if you’re looking to sell a vehicle that has a lien on it. Here are some frequently asked questions that can help clarify some typical concerns.

What happens if I sell a car with a lien?

When you sell a car with a lien, the lien needs to be paid off either before or at the time of the sale. If paid before, you can provide the buyer with a lien release, which is proof that the car is no longer financially encumbered.

If paid at the time of sale, the payment should be made directly to the lienholder who will then release the lien. It’s important to be transparent with the buyer about the existence of the lien to prevent complications during the transfer of the vehicle title.

How can I check if a car has a lien?

You can check whether a car has a lien by conducting a vehicle history report, which provides detailed information about the car’s past, including any liens. This report can be obtained from various online services.

Additionally, you can contact your local Department of Motor Vehicles (DMV) and provide them with the Vehicle Identification Number (VIN) to perform a lien check.

What happens if I can’t pay off my car loan?

If you’re unable to pay off your car loan, the lender has the legal right to repossess the vehicle due to the lien placed on it. This means they can take back the car without going to court or warning you in advance. After this, the vehicle is typically sold at an auction to recover the money owed. If the sale doesn’t cover what you owe, you may still be liable for the remaining balance.

Can I refinance a car with a lien?

Yes, you can refinance a car with a lien. Refinancing involves taking out a new loan to pay off the existing one, potentially securing a lower interest rate or a more manageable repayment plan.

However, it’s important to note that the lien won’t be removed until the new loan is paid off in full. It’s advisable to consult with a financial advisor before deciding to refinance, to ensure it’s in your best financial interest.

Final Thoughts

Navigating the world of auto financing can be complex, and understanding the concept of liens is a critical part of this process. Liens serve as a form of protection for lenders and can significantly impact your car buying or selling experience. Thus, gaining a thorough understanding of what a lien on a car is, is essential.

When buying a car, it’s critical to conduct due diligence to ensure that there are no hidden surprises down the line. A lien check will provide you with the peace of mind that the car you’re about to purchase doesn’t have outstanding debts attached to it. Similarly, as a seller, being upfront about any liens on your car will simplify the sales process and maintain trust with the buyer.

Moreover, always remember that options are available in the event that you’re unable to pay off your car loan. Reach out to your lender, explore refinancing options, or consult a financial advisor to help navigate your situation.

Understanding car liens can feel daunting, but with the right knowledge and resources, you can make informed decisions that best suit your financial situation. Whether you’re a buyer or a seller, your understanding of liens is a powerful tool in the realm of car ownership.

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