What is a Lienholder on a Car?

A lienholder is typically a bank, financial institution, car dealer, online lender, or legal entity that is the financier of your auto loan. The lienholder has a legal right to your property (e.g., your vehicle) until you have completely repaid the loan.

Regarding auto loans, a lender becomes a lienholder after they’ve placed a lien on your vehicle’s title. The lien will not be released from your title until the loan is paid, but you can still drive your car throughout the repayment process. 

If you default on the loan, the lienholder has the legal right to repossess your vehicle and sell it at auction to satisfy the remainder of your debt obligation. Repossession is the main risk associated with a vehicle-secured loan, such as an auto loan or auto title loan, but a lender may be willing to work with you to find an alternative solution if you encounter repayment issues. Whether you are struggling to pay off your auto loan or car title loan, the most important thing you can do is communicate with your lienholder, meaning the lender or loan servicer, before you default on the loan.   

What is the Impact of Lienholders on Car Ownership?

If you want to purchase a vehicle but you do not have enough money upfront, then an auto loan can be the answer. It’s important to remember that your finance company will be the lienholder, and therefore has the legal right to the car until the debt is cleared. That means you won’t fully own the vehicle until a lienholder releases the lien. Therefore, the vehicle is not yours to sell. If you are trying to purchase a car with a lien on it, the seller must completely repay the loan before they can transfer the title to you, or you can decide to take over the loan and pay it yourself. However, if you choose to repay the loan, the lienholder may decide to run a credit check and ask for a few documents before allowing you to take on that debt. The paperwork can vary from state to state, but you can expect to provide proof of insurance and a valid driver’s license. Keep in mind that some lenders may not allow you to take over the auto loan. 

If you want to sell a car with a lien, you must repay the loan’s outstanding balance first. In some cases, you can coordinate with the buyer to pay upfront so you can pay the loan balance directly, allowing the lienholder to release the lien. It can be tough to sell a car with a lien, but you may be able to find a buyer willing to work with you.

The process of removing a lien from a car title varies depending on your state. Generally, after your final payment is made, the lienholder will provide you with a lien release document, which you can submit to the applicable government agency to have the lien removed from the title. If your lienholder and your state participate in an electronic lien and title program, your lien can be released electronically, saving you the hassle of visiting your local Department of Motor Vehicles (or state equivalent).

Do Lienholders Affect Car Insurance?

lienholders car insurance

Insurance requirements for cars with lienholders are typically more extensive than those without. Lienholders often require borrowers to have more insurance coverage, including both liability and comprehensive coverage, which may be more than the minimum required coverage in your state. When lienholders require this level of insurance coverage, they ensure their investment is protected from accidents or unforeseen events. 

Be aware that having a lienholder can also affect your insurance premiums. Car insurance premiums are typically higher for vehicles with lienholders because there is more coverage required. Additionally, lienholders may have specific insurance conditions, like a maximum deductible, that can impact your overall premium. It’s worth noting that the effect on your premium can depend on several factors, including your driving history, state, and the type of vehicle you drive. 

How Does a Lienholder Work for Vehicle Title Loans?

Title loan lenders work just like any lienholder, meaning that when you have a car title loan, a lien is added to your title. Just like when you finance a car, this lien indicates the lienholder’s legal right to your car or truck. Once you have completed all of your monthly payments, the lien will be removed from your title. If you start missing payments and end up in loan default, the lender can repossess your car and sell it to satisfy the remaining balance on your loan. 

Remember, a lien on the title doesn’t mean you automatically lose access to your vehicle. As long as you’re on time with your payments, you can continue to drive your car as you normally would!

Paying off your debt obligations is the easiest way to remove the lien from your title. However, if you face issues during the repayment process, you can always communicate with your lender before defaulting on your loan! Dial 855-422-7402 if you have any pertinent questions, such as “What happens if my car is stolen with a title loan?”

Where Can I Apply for an Auto Title Loan Online?

apply for an auto title loan online

If an auto title loan sounds like an ideal option when you need emergency cash, you may be searching for the best place to get a title loan. Fortunately, with a ChoiceCash title loan, you can submit an online application at any time of day or night, meaning it’s easy to find title loans open on Sundays! If you qualify through this loan option, you can expect no balloon payments, no prepayment penalties, and zero hidden fees!1 Dial 855-422-7402 if you have any questions about the application process.

Sebastían S.
Sebastían S.
Sebastían S. is a graduate of Texas State University and a contributing member of the ChoiceCash content team with over two years of experience in the financial services industry. As a proficient digital content writer, his writing style combines transparency and expertise in order to make complex financial topics accessible to a wide audience. Whether the topic is about title loans, debt management, or budgeting, Sebastian's objective is to provide readers with accurate and relevant information that is easily understood. Find him on Linkedin.