What Are Car Liens and Why Do They Matter?
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Buying a car, whether new or used, is an important financial decision.
On average, car costs these days – new or used – range from $25,000 to $45,000, and typical buyers need an auto loan to spread out their costs over time.
Financing makes buying a car manageable, allowing borrowers to keep extra funds in their bank accounts for daily necessities while still driving the vehicle of their choice.
However, a creditor takes a risk whenever they loan someone money to buy a car. They can't know for sure whether or not a particular person will repay them. So how does a lender insure themselves against borrowers who might default?
In the case of a car, property liens give creditors an insurance policy against borrowers who default on their financial obligations. If someone fails to make payments, a lender has the legal right to repossess the property.
What is a lien on a car? Let's look at the details of car liens and what they mean for car buyers who finance.
The basics of financing
Financing is a helpful way to get behind the wheel of the vehicle of your choice, even if you can't pay for it outright.
Several different elements make up the terms of an auto loan, and each affects how much you pay both monthly and in total.
A down payment on a car loan reduces the total amount that you borrow, and in turn, the cost of your monthly payments.
The term length on an auto loan refers to the total period you'll make payments towards the sum borrowed. Typically, auto loans last from 24 months to 84 months.
The loan's interest rate is a percentage of the total borrowed, or principal, added to your monthly payments.
A car loan's annual percentage rate, or APR, comprises the interest rate and additional fees. The APR paints a clearer picture of your yearly costs than the interest rate itself.
Financing helps you get behind the wheel of your vehicle of choice, but it can be a hassle. Finding a good auto loan takes up valuable time and prolongs the process of buying a car.
But Shift makes financing easy. At Shift, a network of trusted lenders compete for your business, so you get the best deal on financing. When you apply for financing with Shift, there's no cost or obligation. Financing with Shift is so convenient that nine out of 10 buyers choose us when they need a car loan. And if you have low credit, don't worry because Shift welcomes co-signers.
What does ‘lien’ mean?
How do liens work?
Unlike a trusted friend who spots you cash here and there, a creditor needs extra assurance you'll pay them back.
Lenders also profit on auto loans by charging interest and other fees. But if a borrower defaults on a loan and tries to keep the vehicle they've been financing, it can mean a significant loss of money for the lender.
That's why a lender retains a legal claim against the car they finance, also known as a lien, until the borrower pays the loan back in full.
A lender holds a legal right to a vehicle with a lien and can take possession of the property should someone not pay back a loan.
But once a borrower pays their auto loan in full, the lender notes a release of lien and signs the title over to them. When this happens, the borrower holds a free and clear title, becoming the legal property owner.
Can you drive a car with a lien?
Though the lender retains the title during the term of an auto loan, you're still free to drive your car as you please. Liens provide an extra level of insurance for a lender while you continue making payments on your loan.
Once you've finished making payments and the loan is paid off in full, you'll hold the title to your vehicle, free and clear.
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Can you sell a car with a lien?
If you're still making payments on your current vehicle but decide it's time to sell, you can do that.
However, your lender has the first right to any money you receive, and you can pocket anything above and beyond that amount.
In a scenario where someone buys a car with a lien, one practice is writing two separate checks: one to the lender to pay off the lien and another to the seller for any funds above that sum.
Once the lender receives repayment for the loan, they transfer the title to the new owner.
Selling your current vehicle can net you a nice amount of money to put toward your next one. But selling a used car is time-consuming and can take days, weeks, or even months before you find a buyer. But when selling your vehicle to Shift, there's no need to worry about any of that. All you'll have to do is enter the make, model, year, and mileage on Shift's easy-to-use website, and you'll instantly receive a purchase offer that's valid for seven days. You can get a fair offer, better than at the dealership, driven by powerful machine learning algorithms and tons of data.
With Shift, there is no need to spend the extra time waxing and washing the car. A little dirt will not affect the quote, and we fully detail the cars ourselves anyway before listing them for sale.
Buying a car with a lien
If you're looking at a used car sold by a private seller, it's essential to know if it has a lien before you move forward with a purchase.
Several methods exist to locate liens on used vehicles.
A simple way to do this is by performing a title search. If someone other than the seller holds a lien against the vehicle, the title lists this information.
Another way of finding out a car's lienholder is by checking public records with the state department of motor vehicles. Some DMV websites allow you to enter a car's vehicle identification number and find out whether or not it's subject to a lien. You can locate the VIN on the driver's side dashboard near the windshield, the engine, or inside the hood.
The third practice of ascertaining whether or not a lien's held against a specific car is obtaining a vehicle history report. Online providers like Carfax and Autocheck provide lien status and worthwhile facts like ownership history, past accidents, and more.
Once you've sold your previous vehicle, it's time to purchase your next one. Buying used can save you thousands of dollars, but where can you go for not only a quality vehicle but also a great price? At Shift, certified mechanics perform extensive 150-point inspections on every vehicle sold, and you get a free Carfax report for the ultimate in transparency. And Shift offers fair, no-haggle prices driven by powerful machine learning algorithms and tons of data.
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April 15, 2022
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