What Is a Lien on a Car?

By Renee Valdes 04/02/2024 8:00am

For car buyers, a lien on a vehicle means a bank or other lender holds the title and owns the legal rights to it until you pay off the loan. Read on to get details of liens and more.

Why Is a Lien on My Car?

Many people who purchase cars can’t afford to pay cash and instead take out a loan when buying a new or used vehicle. The lien protects the lender and is typically filed with the state Department of Motor Vehicles (DMV). If a car buyer stops payments and defaults on the loan, the lienholder can take action to repossess the vehicle. However, once you pay off the car, the lien is lifted. At that point, the lender sends the title to the car owner free and clear.  

If a car buyer leases a vehicle instead of purchasing it, then the lessor holds the rights to the vehicle if payments stop. Learn more: Car Leasing Guide: How to Lease a Vehicle in 2024.

What If I Sell My Vehicle Before Paying It Off?

If you decide to sell your vehicle when you still hold a loan, you’ll need to use the funds from the sale to pay it off. At that point, the lender releases the lien and sends you the title. Then, you can sign over the title to the new owner. For more information, see our article on How to Sell a Car: 10 Steps for Success.