Liens & Insurance

A lienholder is someone who has either leased a vehicle to you with an insurable interest or given you money on loan to buy it. The lien holder is usually a bank or another financial firm. When insuring your car, the lienholder is also included in your policy. This will protect the lien holder if you are in an accident and damage the vehicle. The lien holder has a secured interest in the car.

When you borrow money from a private party, bank or other financial institution to buy a car,part of your contract includes allowing the creditor to place a lien on your vehicle.

A lien is a legal claim that allows the lender to reclaim your car if you don’t pay your loan as agreed, in short, the lender legally owns the car until you pay it off in full.

Liens & Insurance

Because the lender (also known as the “lien holder”) owns the car until you pay off what you owe, they also have certain rights when it comes to your car insurance.

The lien holder’s name is on your policy. For instance, the lender’s name will be listed along with yours on your auto insurance policy, according to the National Association of Insurance Commissioners (NAIC).

Lien holders can require certain car insurance coverage.

The lien holder may require that you purchase comprehensive coverage and/or collision coverage on your car insurance policy,

says the NAIC. (Once you’ve paid off your loan, you may have more choices about how you insure your car, says the NAIC.)

Liens and Car Titles

When you borrow money for a car, it’s common for your lien holder to keep the title, which is the legal ownership document for your car.

The lien holder’s name may also be printed on the title — as legal reassurance that you can’t sell the car until it’s paid off.

When you fully repay your car loan, the lender can legally sign over the title to you or submit paperwork to your state’s department of motor vehicles (DMV).

These steps verify that your lender has officially “released” its lien on your car, explains Edmunds.com. At that point, the car is fully yours to keep, sell, or insure differently, as you see fit.