If you’ve ever funded a car, you could have dealt with a lien, whether you’re aware of it or not. A lien is a lender, bank or financial institution that holds legal claims against the vehicle until it has fully repaid the loan. If you are funding your vehicle, lenders also have minimum insurance requirements. Bankrate’s team of insurance experts will explain what your lien is, what your ownership is, how your car insurance will be affected.
What is a lien?
Liens are financial institutions such as banks and credit unions, lending you money to buy a vehicle. The amount you owe is a lien and guarantees that the lender will receive the loan repayment. Lien holders will have financial and legal interest in the vehicle until the loan is paid back.
How does lien work?
When funding your vehicle, you agree to repay the loan balance and interest on your installment payments. The lender is technically a co-owner of the car and has legal claims until you pay it off. If the loan or other default repayment fails, the lender can reclaim the vehicle to recover the loss. Once you pay it fully, the lender releases you from the loan with the release of a lien and you become the full legal owner of the vehicle.
Why is my car insurance lien?
When lenders fund your vehicle, they want to make sure that the vehicle (its collateral) is fully protected. Lenders typically require full coverage with comprehensive and collision coverage, and may limit the height at which you can set your deduction amount.
Because liens have an interest in the value of the vehicle, they are listed on your car insurance to ensure that coverage meets and continues the lender’s requirements. Liens will be notified if the policy is cancelled. In that case, you may need vehicle troop placement insurance to protect interest and add it to your loan balance.
Who needs the lien?
Those who fund the vehicle rather than purchasing it entirely require a lien. The most common type of lien is the loan issuer for your car loan. Liens are usually financial institutions, but they may also be persons. For example, if your grandparents lend you money to buy the vehicle and you are paying them, they can be considered liens.
However, there are other rare opportunities where liens may be added. If you do not pay off your debt, a person can file a mechanic lien on your car. Mechanics’ liens may need to pass through the court first before adding a lien to the DMV.
Do I need a lien to lease my car?
Liens are only required when funding the vehicle. Since you don’t own a car, a lease is not a loan – you essentially owe a certain amount of time. There is a financial transaction between you and the company that leases your car to you. However, instead of being called a lien, an entity is called a lender.
Does a lien affect car insurance?
Liens do not directly affect car insurance premiums, but they can affect your coverage needs and determine how much you will pay for your car insurance. If you have a lien, your car insurance requirements may differ from your state’s minimum liability requirements.
Liability compensation meets most state requirements, but only protects other vehicles and property that will damage you in an accident. Full coverage includes comprehensive and collision coverage. This protects the financial interests of the lien by covering damage to the funded vehicle and ensuring that you can afford to repair damages from the accident.
How to know if your car has a lien
If you are interested in purchasing a used car, we recommend checking and checking if your car has a lien. Foreclosure is possible if the vehicle is located because an individual has placed a mechanic lien on the vehicle or the vehicle’s payments were not paid in full.
Buying a vehicle with a lien means that you will ultimately be liable for any outstanding debts to the lien. There are several ways to check if your car has a lien before you buy.
- The fastest way to check if your car has a lien is to check the vehicle’s documentation. Check the vehicle’s title to see if the lien is named in the title. Most states retain their title until the lien is repaid. Only nine states, Kentucky, Maryland, Michigan, Minnesota, Missouri, Montana, New York, Oklahoma and Wyoming, send the owner’s name and the lien’s name directly to the vehicle owner until the loan is repaid.
- Many states have an online title checker if you don’t have access to the title. To receive a car title report, you must enter your vehicle identification number (VIN).
- You can pay for title reports from companies that provide the history of the car and perform VIN checks. The company provides title checks and accident history for related vehicles.
How do I buy a car with a lien?
Many people sell vehicles along with their lien. If you have a lien on a car you’re interested in purchasing and want to move forward with your purchase, there are a few steps you can take to protect yourself before purchasing the car.
- Negotiate the low price of the vehicle. You may be able to deduct any outstanding loans from the vehicle’s purchase price and use the deduction to repay the loan.
- Ask the seller to discharge the vehicle loan. For protection, wait for the seller to complete the process before purchasing the vehicle.
- Convince the seller to repay the loan amount. Sellers may be willing to repay the loan with proceeds from the sale. When completing the sale, please release the agreement in writing and release the lien in title.
- Ask the seller to refinance the amount outstanding. If the seller can refinance the amount to pay off the vehicle’s lien, he will clear financial liability from you when purchasing the vehicle.
How to add or remove a lien
The easiest way to add LEENHOLDER to your auto policy is to contact your car insurance company and provide information about your lien. The insurance company requires the name and mailing address of the financial institution that will serve your loan. You can find this information about your loan agreement or contact your lender and ask what your car insurance lien information is. The lender will send the document to your state’s DMV and will be added to the title as a lien.
After you have repaid your vehicle, you can remove the lien from your car insurance. Your insurance company may ask for proof that the loan has been paid in full. This could be a letter that will free you from the loan from the lien. Once the loan is paid back, the lender will automatically send a lien release to the DMV, which will mail a clear title. If you want to continue to have comprehensive and collision coverage of your vehicle then it’s up to you. Please note that if you remove these coverage types from your policy, you will be paying from your pocket for damages received by your vehicle, such as colliding with another vehicle or suffering hail damage.
