A lien is, at its simplest, an insurance policy that a lender uses to protect itself if a borrower defaults on a financed vehicle. A lien is the lender’s legal right to the vehicle, and it remains in place until the loan has been fully paid.

If you recently bought a car with a lien on the title, take these steps to put yourself in a less precarious financial situation.

What is a car lien?

While having a lien on your vehicle may feel daunting, it is not uncommon.

Vehicles financed with a loan are typically put under a lien until the loan is paid off. This “insurance policy,” put in place by the lender, gives it the legal ability to keep the vehicle’s title until the balance of the loan is paid off. Many drivers do not fully understand how a lien works until they try to sell their vehicle and realize that they are not able to.

If there is a lien in place on a vehicle, lenders or creditors can repossess the vehicle if the loan has not been paid off or falls into default.

Along with affecting the ability to sell a vehicle, a lien also influences the cost of your auto insurance.

How to tell if a car is under a lien

When buying a used car, it’s always best to have the seller provide you with a letter from the lender stating that the lien has been released. If the seller is providing you with the title, check with your local Department of Motor Vehicles first to ensure there is no lien. In some cases, you may be able to use the DMV website to search online for a lien using the 17-digit vehicle identification number (VIN). This number may be found in various places including the lower left side of the vehicle’s windshield.

In many cases when you receive a title for the used car, the chances are that the lien has been paid in full — it just hasn’t been released properly. This can happen because of a bank error, or it can get lost in the shuffle of a merger or a bank failure. Look out for this when working with the seller.

Where to find lien information

Lien information can be tracked down in several ways including:

  • Department of Motor Vehicles: Using the vehicle identification number you can check a vehicle’s lien status at the Department of Motor Vehicles. In many places, you can conduct a lien search online using the DMV website. You may also be able to call your local DMV to obtain lien information.
  • Vehicle history report: Various online websites offer vehicle history reports for a fee. These sites, such as VIN Smart and AutoCheck, provide full vehicle history reports along with lien information.

How to get a lien removed from a car title

Buying a used car shouldn’t come with any strings attached — especially not a lien. Although it may take some legwork, and quite possibly several weeks, you can probably get your issue resolved at little or no cost.

Contact the seller

When purchasing a used car through a dealer, be sure to discuss with the salesperson whether there is a lien on the vehicle. In such cases, the dealership typically handles clearing up the lien. If you’re financing the purchase with a loan, your lender will become the new lienholder.

If you are buying a car through a private seller, ask that they provide you with proof that the car loan was paid in full, such as canceled checks or a paid-in-full letter. It is the seller’s responsibility to pay off the loan so that they can transfer the vehicle’s title. You can include that requirement in your purchase contract.

It’s also a good idea to reach out to the lender directly yourself and check the lien status. You even can do so before finalizing the purchase. Ask about the total amount due to release the car as well as other stipulations that might affect the sale.

Request a lien removal

If the lienholder is a bank that failed (or is a subsidiary of one), you can contact the Federal Deposit Insurance Corp. directly to request a release letter. The FDIC can assist with obtaining a lien if you have verified that the failed bank was placed into FDIC receivership. The FDIC website offers a search function that allows users to check the database of such banks. The FDIC also keeps a separate list of failed banks that includes details about whether the bank was acquired by another financial institution.

Once you have the documentation you need, you can file it with the DMV and get the car registered.

The bottom line

Simply put, it’s hard to enjoy your new ride if there is a lien on it. Make sure the previous owner pays off any money owed so that the car is fully yours — not the bank’s.