Car Liens: What They Mean and How To Check for and Remove Them

What Is a Lien on a Car?

A car lien gives a lender the legal right to take back a vehicle if the borrower doesn’t repay their auto loan. When you finance a car, the lender places a lien on it as a form of protection. Basically, it’s their way of making sure they get paid. The lien stays on the car’s title until the loan is completely paid off.

If you stop making payments, the lien allows the lender to repossess the car, sell it, and use the money to cover the remaining loan balance. But once you pay off the loan, the lender removes the lien, and you become the full owner of the car.

Who Is the Lienholder on a Car?

The lienholder is the person or company that holds the legal claim on a vehicle until the loan is fully paid off. 

🚗If you have a car loan, the lienholder is usually the financial institution that gave you the loan. This could be a bank, credit union, auto dealership, or financing company. In some cases, a private lender, like a friend or relative, could also be a lienholder.

Since the lienholder has a security interest in the car, their name will be listed on the vehicle’s title. This means they have the right to repossess the car if the loan terms aren’t met, such as if payments are missed or required insurance isn’t maintained.

How Does a Lien Affect Your Insurance and Car Title?

A lien may cause you to pay more monthly insurance or have higher premiums. If you finance a car, the lienholder will likely require you to carry comprehensive car insurance. This type of coverage protects the lender’s investment in case the car is damaged or totaled. However, comprehensive insurance is more expensive than basic liability insurance.

A car lien also affects your vehicle title. Until the loan is fully paid off, the lienholder’s name will appear on the title, showing that they have a legal claim to the car. If you financed the car through a bank, credit union, or private lender, their name will be listed as the lienholder on the certificate of title.

Once you pay off the loan, the lienholder removes their name from the title, and you become the full legal car owner. At that point, your title is considered "free and clear." This means no one else has a claim to the vehicle.

How To Check If a Car Has a Lien or Find the Lienholder

Whether you're buying a used car or checking your own vehicle’s lien status, it’s important to know if a lien is attached to the title. A lien means someone else — usually a lender — has a legal claim to the car. Until the lien is paid off and removed, the vehicle’s owner may not have full ownership rights.

Here are the best ways to check for a lien and find the lienholder:

• Check the car’s title: The title should list any lienholders along with their contact information. If the title isn’t in the seller’s name or has an active lien, the lender still has a claim to the vehicle.

• Review loan documents: If you financed the car, your loan paperwork will include details about the lienholder.

• Search the DMV database: Some state Department of Motor Vehicle (DMV) websites allow you to check for lien information online using the vehicle identification number (VIN) or license plate number. In some cases, you may also see details about an electronic lien if one is active.

• Get a vehicle history report: Services like Carfax or AutoCheck may show lien records, past ownership, and whether the car was ever salvaged or totaled.

• Ask the seller for proof of lien release: If the car had a past lien, the seller should provide a lien release document showing the debt was paid.

If a lien is still active, the seller must pay off the loan before transferring ownership. If you already own the car and need to remove the lien, contact the lienholder to confirm the payoff process and ensure the title is cleared.

Can Someone Put a Lien on Your Car?

Yes, in certain situations, a lien can be placed on your car. Most car liens come from lenders when you finance a vehicle. But other types of liens can result from unpaid debts, legal claims, or government actions.

Here are some common reasons a lien might be placed on your vehicle:

• Unpaid auto loans: If you finance a car and stop making payments, the lender keeps a lien on the title until the loan is repaid.

• Mechanic’s lien: If you fail to pay for car repairs or services, the repair shop may place a lien on your vehicle and, in some cases, keep or sell the car to recover the unpaid amount.

• Child support liens: Some states allow child support enforcement agencies to place a lien on a vehicle if the owner has unpaid child support.

• Judgment liens: If a court orders you to pay a debt and you don’t, the creditor may be able to place a lien on your car.

• Tax liens: If you owe back taxes, a government agency may file a lien against your vehicle until the debt is settled.

If you discover a lien on your car that you weren’t aware of, check with your state’s DMV or a title search service to find out who placed it and why. If a lien is placed on your car, you typically can’t sell or transfer ownership until it’s paid off.

How To Buy or Sell a Car With a Lien

A car with a lien can be bought or sold, but the lien must be cleared or properly transferred before the new owner can take full ownership. Whether you're the buyer or seller, it's important to work with the lienholder to ensure a smooth transaction.

Steps To Sell a Car With a Lien

If you’re selling a car with a lien, work with your lender to ensure a legal and smooth title transfer. Here are some general options you have when selling a car with a lien:

• Pay off the loan before selling: If possible, pay the remaining balance so the lienholder can release the title.

• Sell through a dealership: Many dealerships will handle the lien payoff for you if you trade in the car.

• Process the sale at the lender’s office: The buyer can pay the lender directly, ensuring the lien is removed before the title transfer.

• Use an escrow service: If you can’t pay off the lien upfront, an escrow service can hold the buyer’s funds until the lien is cleared.

• Have the buyer assume the loan: Some lenders allow the buyer to take over the existing loan, but this requires lender approval.

Steps To Buy a Car With a Lien

If you’re buying a car with a lien from a private seller, don’t finalize the private sale until you’ve verified that the lien has been properly handled. 

Here are the general steps to follow when buying a car with a lien:

1. Check the title for liens before purchasing. The seller should provide proof that any lien is paid off before the sale is completed.

2. Work with the lender directly. If a lien is still active, arrange to pay the lender directly rather than giving money to the seller.

3. Use an escrow service if needed. This ensures the seller’s loan is paid off before the title is transferred.

4. Confirm the lien release with the DMV. Work with the lender to ensure the lien is paid off before completing the sale. The buyer should verify that the title is clear before finalizing the transaction.

How To Remove a Lien From a Car Title

Once a car loan is fully repaid, the lienholder removes the lien from the title, and you become the full legal owner. In most cases, the lender will notify the DMV and either provide you with a lien release document or a new, clean title.

Here’s how to make sure the lien is properly removed:

• Confirm with your lender: After making your final loan payment, check with the lienholder to ensure they’ve processed the lien release.

• Obtain a lien release document: Some states require the lienholder to provide a notarized lien release, which you may need to submit to the DMV.

• Update the title with the DMV: Depending on your state, you may need to apply for a new title that no longer lists the lienholder. Some states issue a new title automatically, while others require you to request it.

• Check your state’s requirements: Every state has different rules for lien releases. Your DMV’s website will have details on the exact steps you need to take.

Once the lien is officially removed, you can sell the car, transfer ownership, or update your auto insurance coverage. If you're unsure whether your lien has been cleared, a quick title check with the DMV can confirm the status.

💡 Visit your local DMV’s website to find more information about titles, ownership transfers, and private party sales.

FAQs About Car Liens 

Car liens can be confusing, especially if you’re dealing with one for the first time. Here are answers to some common questions about how liens work and what they mean for car owners and buyers.

What Does a Lien Reported Mean?

If a lien is reported on a vehicle, it means there is an active or previously recorded lien on the car’s title. This typically indicates that a lender, repair shop, or other entity has or had a legal claim to the vehicle.

Can an Individual Put a Lien on a Car?

Yes, in some cases, a private individual can place a lien on a car. This usually happens when someone wins a court judgment against the car’s owner or if a private loan agreement includes the vehicle as collateral.

What Happens if You Don’t Pay a Lien?

If you don’t pay a lien, the lienholder may have the legal right to repossess or sell the vehicle to recover the debt. The exact process depends on the type of lien and state laws, but unpaid liens can also prevent you from selling or transferring the car.

How Does a Lien Sale Work?

A lien sale happens when a lienholder sells the vehicle to recover unpaid debts. This commonly occurs in cases of unpaid auto loans, mechanic’s liens, or storage fees, and the sale is usually handled through a public auction or legal process.

Let’s Summarize…

A car lien is a lender’s way of protecting their investment when you finance a vehicle. It gives them the legal right to repossess the car if you stop making payments or don’t follow the loan agreement. Lienholders often require borrowers to have a comprehensive car insurance policy until the loan is paid off.

A lien stays on the car’s title until the debt is fully repaid and the lender releases their claim. The process for removing a lien varies by state. If you’re buying or selling a car with a lien, extra steps are required to ensure the lien is properly cleared before ownership is transferred.