When You Finance a Car Do You Get the Title?
Understand who holds your car's legal title when financing a vehicle and the process to claim it after your loan is fully repaid.
When purchasing a vehicle, many individuals opt for financing, leading to questions about who holds the car’s title during the loan term. Understanding this process is important for car buyers.
Understanding Car Titles and Liens
A car title is a legal document that establishes vehicle ownership. It contains identifying information about the car, such as its Vehicle Identification Number (VIN), make, model, year, and the owner’s name and address. This document is crucial for legal transactions, including selling or transferring ownership.
When a car is financed, a legal claim known as a lien is placed on the vehicle. A lien provides the lender with a security interest, meaning the vehicle serves as collateral for the loan. This arrangement protects the lender’s investment, allowing them to repossess the vehicle if the borrower fails to make payments as agreed.
The lien is recorded on the car’s title, indicating the lender’s claim. This ensures that until the loan is fully repaid, the lender retains a legal interest in the vehicle, even though the borrower has possession and use of it. The presence of a lien on the title prevents the car from being sold or transferred without the lender’s permission.
The Lender’s Role in Title Holding
In most states, when a car is financed, the lender, also known as the lienholder, is listed on the vehicle’s title. The common practice is for the lender to either hold the physical title document or for the state to maintain an electronic record of the lien. This ensures the lender’s security interest is legally recognized throughout the loan period.
While the lender holds the title or its electronic equivalent, the borrower is still the registered owner and has full use of the vehicle. The title will show the borrower’s name as the owner, but it will also clearly list the lender as the lienholder.
Many states utilize Electronic Lien and Title (ELT) systems, which streamline the process by replacing paper titles with electronic records. In an ELT system, the lienholder’s information is stored digitally, eliminating the need for a physical title to be mailed back and forth. The borrower typically receives a copy of the title for their records, but the original electronic record remains with the state and linked to the lienholder until the loan is paid off.
Receiving Your Title After Loan Repayment
Once a car loan is fully repaid, the lender will release their lien on the vehicle. This process typically involves the lender sending a lien release document or electronically notifying the relevant state agency, such as the Department of Motor Vehicles (DMV), that the loan has been satisfied. The lender generally initiates this action within a few business days to a few weeks after receiving the final payment.
After the lien release is processed, the state agency will update its records to reflect that the lien has been removed. In some cases, the state will then mail a new, clear title directly to the vehicle owner. In other situations, particularly in states with electronic titling systems, the owner may need to request a paper title from the DMV after the electronic lien has been cleared.
The time it takes to receive the clear title can vary, typically ranging from two to six weeks, depending on the state’s processing times and whether the title was held physically or electronically.
Managing Your Title in Special Situations
If you decide to sell a financed car, it is possible, but it necessitates coordination with the lender. The loan must be paid off to release the lien and allow for the transfer of a clear title to the new owner. Often, the sale proceeds are used to directly pay off the loan, with the lender releasing the lien simultaneously with the transaction.
Moving to a different state while still financing a car also impacts title and registration. You will typically need to re-register the vehicle in the new state, and this often involves the new state’s DMV contacting your lender to transfer the lien information.
In the event of a total loss due to an accident or other damage, the car’s title plays a role in insurance claims. If the vehicle is deemed a total loss, insurance proceeds are typically paid first to the lender to satisfy the outstanding loan balance. Any remaining funds after the loan is paid off would then be disbursed to the vehicle owner.