Loan or Lien Reported [On Carfax or Other Vehicle Report] • Money Rook

If you are buying a used car on Carfax or another website, it is important to look at all the info about the car. One piece of info to note is if it says “loan or lien reported.” What does “loan or lien reported” mean on a vehicle report?

“Loan or lien reported” on a Carfax vehicle report or other dealer report means that the lender is still technically the vehicle owner. Their name is still on the registration. So, if you ever do default on your loan payments, the lender can legally repossess it.

A lien is a third party’s (a bank or another individual) right to claim ownership of a vehicle until the complete payment of the loan. If you purchase a car by financing it through the dealership, the lender, which in most cases is a bank, will hold a lien against the car.

Read on to learn more about what loan or lien reported means and tips for buying a car with a lien on it.

What Is a Carfax Loan or Lien Reported?

When you are shopping for a secondhand vehicle, you need to check out every detail about it. Of course, you have to ensure that it is mechanically sound. However, you also have to check its paperwork, specifically if a loan or lien is reported on it.

If you are browsing through Carfax for a used car, and you see “Carfax loan or lien reported,” then you may have wondered about its actual meaning.

Essentially, a lien is like an insurance policy for lenders. If you take out a loan to purchase a car, the lender will want to protect themselves legally in case you default on paying your loan. It is where car liens come in.

Having a loan or lien reported on Carfax means that the lender is still technically the vehicle owner. The evidence has their name on the registration. So, if you ever do default on your loan payments, the lender can legally repossess it.

Is a Lien Title Bad?

Buying a car with a lien title is not necessarily bad. When you buy a brand-new vehicle using financing, there is a lien on its title. Check the title, and you will discover that it is not under your name but under that of the lienholder. It might be a bank or any other lender.

Does that mean that you cannot insure a vehicle with a lien title? No, you need to disclose the lienholder to the insurance company, and they will still provide you with coverage. Once you’re done paying off your loan, the lien on the title goes away, and it will be under your name.

However, there are also times when a lien title is bad. For instance, if the lienholder owes the government money, like back taxes, the “owner” does not own the vehicle. The government is the true owner, so expect them to receive the funds from the sale of the vehicle to cover the lien amount.

Another instance where having a lien can be negative is when a mechanic files it against the vehicle owner. If the mechanic did not receive proper compensation for the work they did on the vehicle, they can, through a court judgment, place a lien amount against it.

The amount will be equivalent to the cost of the repairs. This type of scenario does not happen that often. It does not also usually favor the mechanic. However, it will at least let them get back the cost of labor and materials.

The problem with liens is that vehicles depreciate rapidly. As soon as they leave the dealership, they’re no longer worth their original tag price. This means that even a brand-new vehicle purchased using financing will not retain the previous value, equivalent to the loan amount.

This is the case when you sell the vehicle to pay off the loan. You will still be paying for the car’s original price, but you will get a significantly lesser amount from the sale due to depreciation.

Can You Sell a Car with a Lien?

You can sell vehicles that have a lien on them. However, it would be quite more complicated compared to selling a car registered under your name. If you want a relatively easier and hassle-free way to sell the lien vehicle, you can sell it to a dealership.

However, remember that it will be difficult to negotiate a price that you feel comfortable with. If you are selling the car to a dealership, make sure that you research the actual value. It is also important to research the amount still left on the lien and get yourself ready for some serious negotiations.

If you do everything right, you can pay off the remainder of the lien using the money from the sale. You can then transfer the title to the dealership. After that, they can go ahead and resell the car for a profit.

If you want a significantly higher sales price, then you can sell the vehicle yourself. There will be a lot more paperwork on your part. It is also necessary for you and the buyer to appear in the DMV. This is important in completing the transfer of the title.

You can also employ an escrow account when you are selling your vehicle to an individual. An escrow will help you secure the funds and will take care of the transfer. With that, both sides will receive what they signed up for. The seller will receive the money while the buyer will get the vehicle and the title.

There’s even a way for you to combine the escrow and lien payoff. Here, the payment will immediately go to paying off the lien while you can pocket the difference. However, you will need to pay a somewhat hefty fee compared to transacting in private.

Again, what does Carfax “loan or lien reported” mean? “Loan or lien reported” on a Carfax vehicle report means that the lender is still technically the vehicle owner. Their name is still on the registration. So, if you ever do default on your loan payments, the lender can legally repossess it.

Should You Buy a Car with a Lien?

One benefit of buying a car with a lien is that you can usually get it at a more reasonable price. However, it is important to do extensive research and ensure that you provide yourself with proper protection. It could be by using an escrow service or something similar throughout the entire transaction process.

Ask for a copy of the vehicle’s service history report. That way, you can get a more accurate idea of its condition and value. New car prices are a bit too steep for most consumers. It is the reason why they tend to gravitate towards used vehicles with a lien. Since the “owner” still has not paid off the lien, the vehicle may still be a more current model, making vehicles with a lien a smarter buy.

Honesty is important when buying a car with a lien. With that said, ensure that the seller is upfront about the lien conditions. If possible, secure financing for the deal. You may also want to transact directly with the lien holder or bank that owns the vehicle.

If you were scammed into paying the seller before you sign a contract or agreeing to the legal terms, you might end up paying the lien balance yourself. This means you are essentially paying for the vehicle twice.

How to Remove the Lien on a Car’s Title?

If you don’t want to go through all the bureaucratic hoops involved with having a lien on your car, here’s how you can remove it:

1. Paying Fines That Are Due to the State

There is no other way around it, and you need to repay the entire loan balance. If there is a lien on your vehicle, you are not the legal owner. This means you have no rights to it. The lienholder has the power to repossess your car if you miss your payments.

Now, there are cases when you don’t have to pay the lien balance. You can sell the car and use the money to repay the lien. After that, you can have the original lien holder transfer the title to the new owner. However, this is more likely to happen if you sell your car to a dealership compared to a private buyer.

Of course, if you have missed more than a couple of payments, you will need to put in some of your own money. This may be necessary if the sale amount is not enough to cover the loan.

Is It Legal to Pay Back a Vehicle Purchase with the Buyer?

It is possible to sell a car under a lien. You must first find out the fair market value of your car using trusted sources, like the Kelley Blue Book. You can then use the payments to repay the loan balance. Now, you may have to add some more of your own money if you are close to defaulting on it.

This process will take a longer time. The main reason is that you cannot legally transfer the title over to the new owner because you are not the sole owner. With that, you have to be completely transparent with the buyer regarding the lien. Inform them about removing it and working in a way that you are both comfortable with.

2. Ask the Lien Holder to Remove the Lien

Once you pay back the remainder of the loan, ask the lien holder to remove the lien on the car. After that, they should transfer the title to you. Give the lien holder five business days to sign over the vehicle’s title to you, making you the sole owner.

Also, the lienholder should provide you with a notarized lien release form stating that you have settled the loan. This means they no longer have any legal claims to the vehicle. This process usually happens quickly. Also, double-check if the former lienholder held their end of the deal.

You can do that by checking with your local DMV if your car no longer has a loan or lien reported. Some state DMVs even allow you to check the car’s title online using the VIN.

3. Go to Your Local Courthouse If There Is a Mechanic’s Lien

If you live in a state that allows mechanics to place a lien on a vehicle they worked on, then you have no choice other than to go to court. Don’t worry. You usually do not need a lawyer for this process.

Just pay the mechanic what you owe. After that, ask them to notify the court that you paid off the lien. The court will then remove the lien on the vehicle upon receiving confirmation.

4. Ask the State to Remove the Lien from the Title

Once the lienholder removes the lien on the title, you still have to remove their name from the title itself. In some cases, you will need to ask the DMV for assistance. When applying for lien releases, bring with you the original documents. Keep in mind that the DMV does not accept copies of court orders or lien releases.

5. Meet with the Lien Holder and the Buyer

You can also set up a meeting between the lienholder, buyer, and yourself. The goal for this meeting is for you to transfer the title. This option is more likely if the lienholder is a vehicle repair shop, lending company, or towing company.

You still need to go to the DMV to settle a couple of things to finalize the transfer. After that, you are no longer responsible for registering the car. It is now the responsibility of the new owner.

Conclusion – Loan or Lien Reported

A lien is the lender’s right to claim ownership of a vehicle bought using their money. Essentially, the lienholder is the legal owner of the vehicle, not the one who purchased it using the loan. When you purchase a vehicle using bank financing, the bank or any other lending company will hold a lien against “your” car.

Although liens often get a negative rap, they are not that bad at all. If you understand what you are getting into and uphold your end of the deal, having a lien title vehicle is not bad.

Again, to remove the lien on a car’s title, here’s how you can remove it:

Paying Fines That Are Due to the State
Ask the Lien Holder to Remove the Lien
Go to Your Local Courthouse If There Is a Mechanic’s Lien
Ask the State to Remove the Lien from the Title
Meet with the Lien Holder and the Buyer