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What is a Lien Free Car Title?

Buying a used car can be a tricky proposition. It requires a diligent search, test drives, and plenty of legwork to find the right car.

One step that should never be overlooked is the search for any liens on the title. If you make a mistake and the vehicle has a lien on it, you may wake up to find your new car repossessed with very little that you can do about it.

The difference between a car registration and a car title is that the title relates to the ownership of the car, informs the state who actually owns the vehicle, and lists any liens on the vehicle. The registration, on the other hand, relates to the license plates on the car. License plates provide revenue to the state and are usually paid to the state DMV.

A title will not typically contain information regarding the registration or the license plate and should be kept in a safe place at all times. A registration, on the other hand, should be kept in the vehicle.

Let’s now go to what a car Lien is. A car lien is the right that a loan company, bank or other party has to the vehicle in exchange for their assistance in paying for the vehicle. A good example of a lien is a car loan. In exchange for the money to buy the vehicle, the bank puts a lien on the vehicle, which acts as “security” for the bank that you will repay the loan.

If you fail to repay the loan, the bank has a legal right to the vehicle, which they will repossess and sell to satisfy your debt.

When you finance a car (take out a loan to help pay for it) you are giving the lender (bank, credit union, etc.) partial ownership in the car until the debt is repaid. That is called a lien and they are the lienholder. (This also gives them the right to repossess (“repo”) the car should you fail to make payments on the loan.)

Once you repay the loan they will send you a release of lien and you should use this to apply for a new, “clean” title, in other words, one free from lien. Having a title with a lien on it will make it difficult to resell.

There are reasons a car may have a lien on the title, perhaps the owner used it as collateral on a title loan, or they owe the government some money or something else.

Liens can be applied to a vehicle by institutions other than banks or finance companies. If vehicle taxes or fees are not paid, the local government may put a lien on the vehicle.

Unfortunately, liens can pass to a new owner if the car is sold, so before buying a used vehicle it is important to verify there are no outstanding liens against it.

Also there is a type of lien called the Electronic Lien. The Electronic Lien and Title Program (ELT) is a method by which lending institutions (lienholders) can exchange vehicle and title information electronically.

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