A car lien is a legally binding contract between a lien holder and the person financing the purchase of a new or used vehicle. All financed vehicles have a lien on them, and the bank or financial institution offering the loan is considered the lien holder.
Until the borrower repays the loan in full, the lien claimant retains title to the financed vehicle. If the borrower fails to make timely payments, the lien holder can repossess the car.
As new vehicle prices continue to rise, most consumers know how privileges work in the car buying process. However, many people don’t know what a mechanic‘s privilege is, often blinded by its existence when trying to buy a used vehicle.
Understanding a vehicle lien
A car lien gives protection to lenders in the event of default when a borrower fails to make timely payments. The lien holder retains title to the vehicle until the loan is paid in full. A lien holder can be a private lender, bank, credit union, car dealership or other financial entity.
Auto insurance companies list the lien holder on auto policies, and most banks will require full coverage. As long as you make monthly payments, you can drive the vehicle as you wish without any limitations.
Once the loan is paid off, the vehicle owner will receive a copy of the title in the mail and the bank will no longer have any rights to the automobile.
If you attempt to sell the financed vehicle, you must pay the lien holder the full outstanding balance before anyone else can retain ownership. Car and Driver pointed out that “you can sell a car with a lien, but the lender has first claim on the money you make on the sale. You cannot receive this money until you have fully paid the lender.
What is a mechanic’s privilege?
A mechanic’s lien has nothing to do with financing a vehicle. Instead, it is an involuntary lien placed on the title of the vehicle in the event of non-payment for services rendered by an auto mechanic.
According to CarsDirect, “The mechanic or car dealership where you received the service can apply for a court order to place a lien on your car. If they win, they are listed as the second lien holder on the car’s title since your lender is the first lien holder.
The mechanic’s lien is not removed until the outstanding balance shown on the judgment is paid in full. If you are trying to sell the vehicle privately, you should always let the buyer know that there is a lien on the car so they can get a proper title before making the purchase. Most car dealerships can handle the paperwork on your behalf when trading in a vehicle.
How to know if you have a lien on a vehicle
According to iSeeCars, “Depending on your state, an unpaid mechanic’s lien gives the lien holder the right to sell your car at auction. Paying for your repairs is the only way to prevent you from losing your car if a mechanic’s lien has been placed.
When buying a vehicle from a private seller, always check that there are no liens before proceeding with the transaction. A vehicle history report from services such as Carfax will list any outstanding liens.
You can provide the Vehicle Identification Number (VIN) to your state’s Department of Motor Vehicles (DMV) to verify privileges before completing the transaction. The DMV will be able to provide a complete analysis of the title and lien information on the vehicle. There are many third-party providers online who can also perform a title search for a nominal fee.
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