When you're still paying off an auto loan, your lender is a lienholder. This means that until the loan is paid off, you're not the only one with a legal claim to your vehicle. What does it really mean when your lender has a lien on your car?
What's a Lien?
A lien helps creditors recover money if a borrower stops making payments. It gives the creditor a right to possession of property until the debt on that property is paid in full. There are two types of liens: voluntary and involuntary. When you sign a car loan contract, you're entering into a voluntary lien.
A voluntary lien is something that you've agreed to. Typically, there’s language in a contract that lists your lender as a security interest, or secured interest, in your vehicle. This doesn't mean they can come and take your car for no reason, but it does mean they can take it by repossession if you default.
Otherwise, having a lien on your vehicle doesn't impact you in any significant way unless you need to trade it in or sell it before you're finished paying for your car.
Trading In a Car With a Lien
When you need to trade in your car and there's still a lienholder listed on the title, the lienholder needs to be removed before the title can be transferred to another party.
If your vehicle's actual cash value (ACV) is more than you owe on your loan, then you're in an equity position. This means the dealer where you're trading in your car pays the lender the loan balance (and the rest to you or put toward your next purchase), and the lien is removed from the title so it can be transferred to the next owner.
If your vehicle is worth less than what you owe, you're in a negative equity position. This means that the value of your car doesn't cover the amount owed to your lender. In order to remove your lender as a lienholder, you have to pay the difference between the ACV and what your lender is owed.
Sometimes, if you're unable to pay the difference, the lender on your next auto loan allows you to roll over the negative equity from your previous loan, adding it to your new loan balance. When this is done, your previous loan is paid off, and the new lender is listed as a lienholder on your new vehicle.
Finding Your Next Vehicle
Now that you know what a lien is, and that you have to remove it before trading in or selling a car, you also need to know where to go to find your next vehicle, especially if you're looking for a bad credit lender.
Here at Auto Credit Express, we can help with that. We're teamed up with a nationwide network of special finance dealerships that have the lenders available to assist people who are struggling with unique credit situations.
Don't spend time outside that you don't need to. Instead, find a dealer for your next loan right from the comfort of home with our help. To get the process started, simply fill out our fast, free, and no-obligation auto loan request form, and we'll get to work matching you with a dealership in your area.