Who Holds the Car Title When You’re Financing?
Navigate car title ownership during vehicle financing. Learn about financial interests and how to fully secure your title.
When financing a car, understanding the vehicle title is important. The car title is a legal document that establishes vehicle ownership, containing details such as the Vehicle Identification Number (VIN), make, model, year, and the owner’s name and address. It is required for legal sale or transfer of ownership.
Title Ownership During Loan Term
When a car is financed, the title involves both the borrower and the lender. The borrower is typically the registered owner and uses the vehicle, but the lender holds a legal claim against the car until the loan is fully repaid. This claim is known as a lien. The lien protects the lender’s investment, allowing them to repossess the vehicle if the borrower defaults on payments.
The lender’s interest is noted directly on the car’s title document. In many states, the physical title remains with the lender for the loan’s duration. However, some states are “non-title-holding states,” where the borrower might possess the title, but the lender’s lien is still recorded on it. The lender maintains their legal claim until the debt is satisfied.
Lien Recording and Removal Process
Recording a lender’s lien on a car title begins when the loan is originated. The lien is noted on the title through the state’s Department of Motor Vehicles (DMV) or an equivalent state agency. This registers the legal claim by adding the lienholder’s information to the title. In states using Electronic Lien and Title (ELT) systems, title information is stored electronically, and a paper title may not be printed until the lien is satisfied.
Once the car loan is fully repaid, the process for removing the lien begins. The lender issues a lien release, which is formal documentation confirming the loan has been paid in full. This release can be a physical letter or an electronic notification sent to the state or directly to the borrower. The lien release signals to the state’s titling agency that the lien can be removed from the vehicle’s record.
The time frame for the lender to provide this release varies, but often occurs within a few business days to a few weeks after the final payment clears. Many states require lenders to act promptly in releasing the lien, often within 10 to 30 days of payoff. If the state uses an ELT system, the lender electronically notifies the state, which then updates its records. For paper titles, the lender may send the lien release directly to the borrower or, in some cases, the updated title itself.
Obtaining the Title After Loan Repayment
After the car loan is fully repaid and the lien removed, the owner receives the “clean” title, meaning it is free of any encumbrances. The method of receipt varies by state and whether an electronic or paper title was used. In some states, especially those with ELT systems, the updated title may be automatically mailed to the owner by the state’s titling agency.
In other cases, or if the borrower possessed the title with the lien noted, the borrower might receive a physical lien release document from the lender. With this document, the owner may need to submit it to their state’s DMV or equivalent agency to apply for a new title without the lien. Verify that the lien has been correctly removed from the title document once it is received.
If the title is not received within two to six weeks after loan repayment, the owner should first contact their former lender to confirm the lien release was processed. If the lender confirms release, the next step is to contact the state’s titling agency to inquire about the title status. A small fee, often around $15 to $30, may apply for obtaining a new or duplicate title, depending on state regulations.