Although it sounds scary, having a lien on your car isn’t necessarily a bad thing. In fact, many of us probably have a lien on our cars without knowing it. If you’ve financed your vehicle and are making payments, your car already has a lien on it—and it’s no problem at all.
Financing liens are just one type of lien that you can have. There are also child support liens, operation of law liens, and mechanic’s liens. In this article, you’ll learn how a lien on a car works and how it impacts you.
- There are several different types of car liens and not all of them are negative.
- It’s possible to sell a car with a lien on it, though it’s trickier than a typical sale.
- It’s possible to purchase a car with a lien on it, but you’ll want to know how to protect yourself first.
What Is a Lien on a Car?
In short, a lien is a claim to your property, whether partial or in full. It’s first made when you have an obligation to a debtor and is eventually removed when you’ve satisfied that obligation. Liens are not just limited to cars. You can also have a lien placed on your home or other property that you own. If you opt not to repay the debt you owe, the creditor may be able to repossess your property, including your car.
Types of Car Liens
There may be a lien on your car for a number of different reasons, but not all of them are negative. Let’s take a look at the different types.
Financing liens are very common. If you buy or lease a vehicle with financing, rather than purchase a car upfront, then there is a lien on the title. The lien will be placed by your auto loan lender, whether you’ve chosen to go with your own bank or have financed through the dealership.
When you buy a vehicle with financing, you owe a debt to the entity that offered the funds. As soon as you pay off the loan on the vehicle, the lien is removed, and you are the sole owner of the car.
The purpose of this lien is to ensure that you repay your loan. It serves to protect the lender from defaulting. If you stop making payments, they may have the ability to repossess your car.
Child Support Liens
Child support is the amount of money that a court orders one or both parents to pay in order to pay for the child and the child’s living expenses. Child support ensures that both parents contribute equally toward raising their child—and it’s mandatory. Failing to pay child support can result in a lien for the debt placed on property.
Rules regarding these liens vary per state. In most cases, the child support enforcement agency is given the power to place a lien on a parent’s personal property, including your vehicle, for the amount of child support that goes unpaid.
Operation of Law Liens
An operation of law lien is a broad definition for a lien that is placed on your car in the course of upholding the law. It can take many shapes, but generally speaking, it occurs when there isn’t a statute or other contract that expressly defines what type of lien will be placed on your property. An example of this is unpaid court fees—when the lien is placed on your car to recoup the fees, it is considered an operation of law.
A mechanic’s lien allows mechanics to put a lien on your car in the case of unpaid services. This means that in the event that they repair your car and you refuse to pay, they can file a lien until you’ve paid off the bill.
A mechanic’s lien can also be placed on buildings and land. This ensures payment to builders, contractors, and construction firms for their labor and the materials used.
How To Find Car Lien Information
It’s possible to find out if your car has a lien on it. Each state must perform an instant title verification check on a vehicle that is brought into the state by an individual or entity. Once approved, a vehicle will receive a certificate of title. As part of this process, the state identifies if the vehicle holds a lien status, among many other things.
You’ll need the vehicle identification number (VIN) of your car and a website that can run title searches.
According to 2018 Federal Highway Administration Data, 98% of DMV data in the U.S. is represented in the system before issuing a title.
Buying a Car with a Lien
Although unusual, it is possible to purchase a car that has a lien on it. This can sometimes ensure that the price is more reasonable. You won’t be able to complete the transfer and assume the title under your name before the lien is cleared, but once that’s done, you can easily transfer over the cleared title.
If you’re going to buy a car that has a lien on it, you should protect yourself before handing over any money, either with an escrow account or a signed contract.
Selling a Car with a Lien
It can be a little bit tricky to sell a car that has a lien on it. You’ll either need to find a party who is willing to give you the money to clear the title, which you can then use to pay off your lien, or you’ll need to clear the lien yourself before selling the car.
Most often, people who are looking to sell a car with a lien can do so at a dealership, which can give you the money to immediately pay off the lien. When selling to a dealership, be sure to come prepared and know what your car is worth.
Frequently Asked Questions (FAQs)
What is a lien release?
A lien release occurs when you’ve completed your obligation to your creditor and paid the debt. In the case of a financial lien, this means paying your car off in full.
What insurance do you need when you have a lien on your vehicle?
The type of insurance that your auto loan lender requires can vary. Generally speaking, though, you’ll need to have comprehensive and collision insurance that covers different types of damage.
What happens if you total your car and there’s a lien on it?
Lienholders can require you to buy certain car insurance coverage to further protect their investment in the case of damage. Unfortunately, in most cases, you’re still liable for the loan even if your car has been totaled. Depending on the amount the insurance pays out, you may be able to pay off the loan entirely. Otherwise, you’ll need to pay it off out of pocket.