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A car title deed is a legal document of ownership. If a car title has a lien, it means the lien holder has a legal right to the car. For example, if you have a car loan, your lender is the lien holder until the loan is fully paid off.
Here’s what you need to know about a car title lien holder and how it affects your car insurance.
What is a Car Title Lien Holder?
When you borrow money to buy a car, the amount you owe your lender is a lien. Your lender holds title to the car and is considered the legal owner until your loan is paid off. The lien allows your lender to repossess your car if you stop making payments.
A lien holder could be:
- individual private
Can my lien holder force me to purchase auto insurance?
Yes, your lien holder may require you to carry certain types of auto insurance. There may be a clause in your loan agreement that specifies the types of coverage and the amount of insurance you will need.
Typically, your lien holder will require you to purchase collision and comprehensive insurance. These are two separate types of coverage that pay to repair or replace your car if it is damaged by a covered issue, including car accident, hitting an object, car theft, vandalism, fire, hail, fall of objects, floods and collisions with animals.
If you took out a loan to buy your car, some lenders will also require you to purchase gap insurance. This type of coverage pays the “gap” between what you owe on your car loan or lease and the depreciated value of your car if it is totaled due to a problem covered by your policy, such as a car accident. or a fire.
Your lien holder may also have other auto insurance requirements, such as the amount of liability auto insurance you will need to carry. Although your state determines the minimum amount of auto liability insurance you need, your lien holder might require higher coverage amounts. Your lien holder could also determine the amount of your auto insurance deductible.
Once your loan is repaid, you no longer have to purchase the types of optional coverages that were required by your lien holder. But if you drop Collision and All Perils coverage, you won’t be covered for some issues. For example, you’ll have to pay car repair bills out of pocket if you’re at-fault in a car accident and don’t have collision coverage.
What other types of insurance should I buy for a car with a lien holder?
One optional coverage you may want to consider is new car replacement insurance. This coverage pays for a new car of the same make and model instead of the total depreciated value of your car.
New car replacement insurance usually has age and mileage requirements, depending on the insurance company.
For example, Farmers car insurance replaces a car of the same make and model if it is within the first two model years and has less than 24,000 miles.
How do you file an auto insurance claim if you have a lien holder?
If your car has a lien and is damaged due to an issue covered by your policy (such as a car accident or fire), filing an auto insurance claim with your insurance company starts with the same basic process:
- Make sure you are safe at the scene of the accident and get medical treatment if necessary.
- Take photos and exchange information at the scene of the accident.
- Contact your insurance company to file a claim.
- If the police were involved, get a copy of the police report.
An insurance adjuster will be assigned to your claim and assess the damage to your car. Once a settlement has been reached, your insurance deductible will apply and your insurance company will issue a check. The lien holder can receive the insurance check. In some cases, the check may be made payable to you and the lien holder.
The lien holder will likely require you to fix your car and may ask you to sign the check for them to pay the body shop directly. Or the lien holder may ask you to show documented proof that the car was repaired and then you sign the check to pay the bill.
Related: How to cash an auto insurance claim check
How to add or remove a lien holder from your car insurance
If you have a car loan, your insurance company will likely require you to list your lien holder on the insurance policy. To remove the lien holder from your policy, you will need proof that you own your vehicle. Once you have paid off your car loan, your lender will send you the original title. In some states, you can get a lien release instead.
Once you have title or a lien release, contact your insurance company and provide them with proof that you own your car. Your insurer can then remove the lien holder from your auto insurance policy.
What is the difference between a lien holder and a lessor?
Here is the main difference between a lien holder and a lessor:
- Lien holder: When you finance a car, your lender is the lien holder until your car is fully paid off.
- Lessor: When you rent a car, the party responsible for your rental is called a lessor. Since you don’t own the car at the end of your lease, there’s no lien holder involved, although you may have the option of buying the car or extending your lease.
How do I know if a car has an exceptional lien?
If you have the vehicle identification number (VIN), you can usually find out if there is an outstanding lien holder by contacting your state’s Department of Motor Vehicles or using their online lien checker tool. WINE.
You can also use a service such as AutoCheck or CarFax to determine if a car has a lien. Although these services cost money, you can also get other useful information, such as the car’s accident history, maintenance history (like transmission replacement), and brands. alarming titles, such as fires, floods or hail.
Related: How to know the history of a car
Can I buy or sell a car that has a lien holder?
Yes, you can buy or sell a car with a lien holder, but buying or selling a car with a current lien can be tricky. This is because the lien holder legally owns the car and you cannot take possession of the title until the lien is paid off.
If you are the seller, you will need to have the lien paid in full before you can transfer title to a new buyer.
Selling a car with a privilege
To sell a car with privilege, start by gathering the following information about the vehicle:
- amount of compensation. Ask your lender how much you still owe on your loan.
- Car value. Find the value of your car using resources such as Kelley Blue Book or the National Automobile Dealers Association.
- Amount of equity. Calculate whether you have positive or negative equity by subtracting the gain amount from the value of the car.
If the equity amount is negative, it means you owe more than the car is worth, or you are “upside down” on your loan. If you have negative equity and sell your car privately, you usually have to pay your lender the money you receive from the sale of the car, plus an amount equal to your negative equity.
For example, if you still owe $10,000 on your car and a buyer buys it for $7,000, you will pay your lender $7,000 for the sale and the remaining $3,000 out of pocket. You and your lender will sign the title and give it to the buyer, who can get a new title and register.
If you have positive equity (your loan balance is less than the value of the car), the buyer will usually pay your lender the full sale price. Your lender would then pay you the difference. For example, if you owe $10,000 on your car and you sell it for $15,000, your lender would get $15,000 and then give you $5,000.
Now suppose you trade in a car with negative equity at a dealership because you want to buy another car. The dealer may suggest transferring your loan balance to your new car loan or deducting it from your down payment. This would be the amount after subtracting the value of your car from what you still owe on the loan. If possible, consider avoiding transferring the balance of an underwater loan into your next car loan. This increases the amount of your new loan and your monthly payments, and it can also put the new loan at risk.
For example, let’s say you still owe $15,000 on your car loan and it’s worth $10,000. If the $5,000 of negative equity is added to your next car loan or deducted from your down payment amount, your monthly payments and loan amount for the next car will increase.
Buy a car with a privilege
If you’re the buyer, make sure the lien is paid off before you close the deal. Failure to pay a car loan could lead to repossession of the car.
If a car has a lien, your lender may be able to work directly with the seller’s lender or you may have other options, such as an escrow service. Here is a guide to buying a car with a privilege.
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