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Guide to Lien Placement
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Financial Expert
Posted October 24, 2017
You got a new car! Now what?
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Buying a new car or truck is really exciting! But, if you took out an auto loan, don’t forget the final steps of the process: You have to put the financial institution that gave you the loan on the title. The financial institution that holds your loan is called the “lienholder,” and the “lien” is the institution’s claim on the vehicle if you were to stop making your loan payments. You have to add the lienholder to your vehicle title to show they have a legal right to the vehicle. If you do not add them to the title, the financial institution will penalize you by charging fees or significantly increasing your interest rate.
Adding a lien to the title
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Thankfully, adding a lienholder to your title isn’t difficult. If you bought the car from a dealership, the dealer typically will do the work for you. They will file the paperwork with the Secretary of State (SOS) or Department of Motor Vehicles (DMV) in your state. If you do not purchase the car from a dealership, you will have to go into the SOS or DMV office to transfer the title from the previous owner’s name to yours. Simply ask to add the financial institution to your title while you are there. You will just need to know the name of the institution and their address.
Once the lien has been placed on the title, make sure you get the proper paperwork to your financial institution. In some states, you just have to give the lienholder a copy of the title. In other states, the lienholder may keep the original copy until the loan is paid off. There are also a few states that have electronic titles, so the SOS or DMV would send digital proof that you updated the title correctly. As always, if you are unsure of what to do, just ask!
Removing a lien from the title
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After the loan is paid in full, you can remove the lienholder from your title to reflect that you own the car free and clear. Once the loan is closed, the financial institution will return your title – if they had the original copy – and provide you with a letter stating they no longer have a lien on your vehicle. You can then take this information to the SOS or DMV to update the title. There is typically a small retitling fee for doing this, but you have to make sure to update the title if you plan to sell the vehicle. You cannot sell a vehicle that has a lienholder on the title. Again, if you are confused about any part of the process, ask your financial institution for help.
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