A lien can be virtually any third-party financial interest in a vehicle that must first be satisfied before a clear title can be issued. The most common liens are related to debt from an auto loan for that vehicle, but they can also take many other forms, such as a mechanics lien or a lien issued for towing or storage related fees.
If you finance a vehicle, then the bank or financial institute that issued the loan holds a lien on the title of the car you bought. Much like a property lien associated with a home mortgage, the purpose of this lien is to protect the loan provider. If for some reason you were not able to continue making the payments you owe, then the lien ensures that the group issuing the loan can take legal possession of the car. Just like a mortgage, once the loan has been paid in full, the creditor relinquishes their stake in the title and the car is yours.
It is not just banks that can issues a lien hold on a title. A mechanic can place a lien on a car for services rendered but not paid. The same is true for a third-party loan where the vehicle was used as collateral. And, depending on your state, it might not always be clear if the used car you are interested in has a title lien on it. It is important that you do your research and get a title history report whenever possible. You can still buy or sell a car that has a lien on it, but you’ll want to check on the regulations in the state where the car is currently registered for what that might entail.
If you are trying to sell a car that has a lien on the title, the important thing to remember is that the lien holder needs to be satisfied before they will release their hold on the title. For this reason, it can be easier selling a car with a title lien to dealership than through a private sale, though the latter is not impossible. It just requires more legwork on your part to make sure the creditor is satisfied and the lien is removed from the title. Again, be sure to check on the specific rules and regulations in your state.
If you are financing a car and are worried that there might be an outstanding debt-related lien on it, you have options. In addition to requesting a vehicle history report (VHR) using the Vehicle Identification Number (VIN), you can often check with your state’s motor vehicle department to see if they have record of any outstanding liens associated with that car’s VIN.