A car title loan can be a fast, convenient, and easy way to get necessary funding in a hurry. When you take out a loan against your vehicle, the title loan lender will typically place a lien on your vehicle, thereby becoming what's know as a "lien holder" or "lienholder". If this term sounds confusing or your are looking to better understand how a title loan lien holder can impact you, keep reading to have your questions answered!
What is a Car Title Loan?
First, let’s talk about what a car title loan is. A car title loan is essentially a type of loan that allows you to use the title of your vehicle to acquire funding. The car or truck is used as security to assure the lender of repayment, and you can use the funds for whatever bill or expense you might be faced with at the current moment. The amount of money that you may qualify for is primarily based on the value or equity of your vehicle, and your income.1
What is a Lien for a Car Title Loan?
A lien is a legal right that someone has to someone else's property or assets. In the context of lending, a lien is a right that a lender has over a property that a borrower is using as collateral for a loan. This legal right can include the ability to take possession of the property in the event that the borrower defaults on the loan.
For car title loans specifically, the lien is placed on the car or truck that's being used to secure the loan, usually as soon as the loan is finalized. The lender or applicable loan servicer places the lien, typically by processing some paperwork with the respective state DMV or - in certain states - filing the lien electronically with the DMV.
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While there is a lien against your vehicle, you normally cannot use the same vehicle to obtain another title loan - unless you find a lender offering second lien title loans or a lender that is willing to refinance your existing title loan.
What is a Lien Holder for a Title Loan?
A lienholder is someone who holds the legal right to the property being used as collateral. For auto title loans specifically, the title loan company, bank, or finance company that gave you the loan will be the lien holder.
The lien holder will normally maintain their lien until the loan is fully repaid. Once the loan has been paid back in its entirety, the lender or servicer will remove the lien from the title which returns full ownership back to the borrower.
In simple terms, you can think of the title loan lienholder as the temporary owner of your vehicle while your title loan is outstanding.
How Long Does a Title Loan Lien Stay on The Car?
The lien on your vehicle's title will generally stay on the title until your auto title loan is paid off, whether that's through a payoff directly by the borrower, or through a title loan refinance. No matter how your final loan balance is satisfied, the lien holder will be obligated to release the lien within the applicable legally mandated timeframes, which can vary by state.
How Does a Lien Against My Car Impact Me?
Now that you understand that having a lien against your vehicle while having a car title loan is perfectly normal, you might wonder how having a lien against your car can impact you. The most important ways that having a lien against your vehicle can affect you include:
- Transfer and sale restrictions: While there is an active lien on your vehicle title, your cannot freely transfer your vehicle to someone else, and you may need to follow a few extra steps when trying to sell your vehicle with an active lien.
- Other ownership restrictions: Title loan agreements can include various restrictions on the car owners. They can for example include limitations on taking the vehicle to another country, using the car for commercial purposes, or making modifications to the vehicle. While these restrictions don't come from the lien itself, honoring the agreement is important due to the lien.
- Auto insurance: Some lien holders may have specific insurance requirements such as coverage amounts or the type of insurance that must be active while the lien is in place. Borrowers may also be asked to add the lien holder to their auto insurance for documentation purposes. Since the lien holder is effectively the primary owner of the asset, lien holders are first in line if there is an accident with a title loan lien in place.
- Risk of loss: Whether you've just financed a new car or you've taken out a title loan, if you don't keep up with your loan payments you're ultimately risking loss of your vehicle. If you default on a loan that is secured by your car or truck, the lien holder has the legal right to take ownership of your vehicle if there is a loan default.
