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Understanding Car Title Liens: What You Need to Know

  • 2 min read

When buying a new or used car, many of us opt to finance our vehicles through loans offered by banks and other financial institutions. While this is a very common way to purchase a car, it also involves an important legal concept: a car title lien. This blog will discuss what it means to have a lien on your car title.

What does a car title lien mean?

If you have a lien on your car title from your lender, it means the lender has a legal claim to your vehicle in the event that you default on the loan. Basically, they keep a security interest on the vehicle until the loan is paid back or charged off. The lien is a way for lenders to protect themselves and ensure that the money they lent is repaid, and if not, they get to repossess the vehicle. The lien will stay active on your title record until the loan is paid off in full. While you may still be the car’s registered owner, the title will reflect the lienholder’s information, making it clear that there is an outstanding debt tied to the vehicle.

How do you clear a car title lien?

A car title lien can be cleared by paying off the loan or by having the loan charged off by the lender. If you repay the loan, the lender should send you the title and a lien release letter. With the title and lien release letter in hand, you can take these documents to the DMV in your state and apply for a clear title in your name.

If you’re financing a vehicle, it’s important to understand what it means to have a lien on your car title. As a borrower, it’s important to remember that while the lien is active, you are limited to what you can do with the vehicle without notifying the lender. Contact your lender to discuss the process before transferring, trading, or selling your vehicle with a lien.