Bad Credit Car Loans and Vehicle Titles
by Steve Cypher on Monday, July 6th, 2009With a bad credit car loan the title to a vehicle is treated in the same way as a conventional car loan.
Questions of ownership
At Auto Credit Express, we have had a number of questions come up recently regarding vehicle ownership from customers with bad credit car loans. Today, we will attempt to clarify car ownership as it pertains to titles.
Vehicle title
Sometimes called a certificate of title, the title is the evidence of vehicle ownership. The title certificate is issued by the Department of Motor Vehicles (the agency responsible, in most states, for vehicle registration titling and driver licensing – states that lack a single agency such as this often have the duties split among several state departments) in the state the vehicle is to be registered in.
It is important to note that the Department of Motor Vehicles (DMV) will only issue a title once it has confirmed ownership of the vehicle.
Titles and liens
A “lien” can be described as a claim on a piece of property as an exchange for debt. In instances involving car loans, the entity that extends the credit (such as a bank, loan company or dealership – in the case of a buy-here-pay-here dealer) is known as the lien holder.
The lien holder is also the secured party (the lien is “secured” by property, in this case, an automobile) and this party is listed on the title as such (usually in the section of the title labeled “first secured interest.”
Release of lien
Until the vehicle is paid off and the installment contract is satisfied, the vehicle cannot be sold and the title cannot be transferred to another person. This means that before you can sell a car that has not been paid off, you first need to contact the lender for a payoff (using the day the bank will receive the funds for the payoff date). Once you receive the check for the payoff, you can either mail it to the bank or take it there in person. When the lender receives the payoff funds, they will process it and generate a “release of lien” statement and either hand it to you or mail it to you.
When you receive the release, you must mail it or otherwise deliver it to the new owner, who can then take it, along with the title (unless the title is held by the state), to the DMV and have a new title issued to them.
In most cases, if you are working with a dealer (as in the case of a trade-in), the dealership will handle this paperwork for you.
The Bottom Line
It’s important to remember that unless there is no secured party on your title or you’ve received a release of lien from the lender, you are not the owner of your car and, therefore, you are not legally allowed to sell it.
As with any legal transaction, the laws that govern your state are the ones that must be followed. For more information on bad credit auto loans, be sure to visit www.autocreditexpress.com.
