What is a lien on a car?
A lien is created as soon as you finance a car. That means the lender holds the car's title and is considered the vehicle's legal owner until the loan is paid in full. The lien protects the lender and allows them to repossess the car if the borrower stops making payments.
Can a lienholder require me to buy specific insurance coverages?
A lienholder is entitled to require certain auto insurance coverages, such as comprehensive and collision coverage. These specific coverages ensure the lienor is protected if the vehicle is damaged or stolen. The lienor may also determine your deductible amount, how much liability coverage you have, and, in some cases, may even appear listed on the insurance policy.
A lienholder is entitled to require certain auto insurance coverages.
How do I add a lienholder to my auto insurance policy?
Certain steps are necessary when adding a lienholder to your insurance:
- Collect your lienholder's information, such as their mailing address, fax and phone numbers, and account numbers.
- Contact your insurance company and request that the lienholder be added to your policy.
- Specify any coverage requirements your lienholder has to your insurance company. This may involve adjusting your policy.
- Have your insurer notify the lienholder that all their requests have been incorporated, and then follow up with the lienholder to ensure all paperwork has been properly filed.
Can an individual be a lienholder on a vehicle?
A lienholder is anyone who holds a legal interest in the vehicle until the vehicle's loan is paid off. The lienholder can be a financial institution, a third party, or an individual.
While most lienholders tend to be financial institutions, it’s possible for individuals to be lienholders on a vehicle as well. This could be a family member or a friend who either previously had possession of the car and you're making payments to them for the vehicle, or they purchased the car on your behalf and you're paying them back the money. In either scenario, that individual holds the vehicle's title until the loan is paid off and you become the sole owner of the vehicle.
What's the difference between a lienholder vs. a loss payee?
A lienholder is the institution or individual who retains ownership of your vehicle until it's paid off. A loss payee is the institution or individual who is entitled to the payout from an insurance claim. In some cases, the lienholder and the loss payee may be the same.
For example, if you're financing your car through a bank (lienholder) and you get into an accident, the money paid out by your insurance is actually owed to the bank (loss payee) because it's their property that was damaged.
Leasing vs. financing a car
When you finance a car, you typically make monthly payments to the lienholder. The lienholder holds the car title until the loan is fully paid off.
When you lease a vehicle, you pay monthly to drive the vehicle, but you don't own it when the lease is up. With a lease, a lienholder isn't involved. The party responsible for your lease is called your lessor. When the lease period is up, you'll have the option to return the vehicle, purchase it, or sign up for a new lease.
Use our lease vs. buy calculator to see which option may make sense for you.
Can I buy or sell a car with a lien?
Buying a car: You can buy a car with a lien against it, but if the owner still owes money on it, you won't be able to get the vehicle's title until they've paid the outstanding balance to the lienholder. Never pay money directly to the seller until you have proof that they have settled the balance of their lien. If the lien isn't paid, the lienholder technically still owns the vehicle and you could be stuck paying the outstanding balance.
Selling a car: When it comes to selling a car with a lien against it, you'll need to settle the outstanding balance with whoever holds the lien on the title. Until you pay off the lien, you can't transfer the title to yourself, which means you don't legally own the car. However, once you're in possession of the vehicle's title, you can begin the process of selling the vehicle and transferring the title to the new buyer.
Until the lien on a vehicle has been paid, you won't be able to transfer the title and register the car. And without a transferred title, you won't be able to sell it down the line.