Once you’ve made the final payment on an auto loan, you’ll need to obtain title from your lender to prove you are the legal owner of the car. This title is also a critical document if you end up selling your car in the future.
what is a lien on a car title?
An auto lien is a note showing that your vehicle is legally owned by another party, in many cases your lender. In many ways, a lien on your car is similar to a lien on your home. With a lien in place, the lender has rights to the vehicle until it repays what it borrowed, plus interest and fees.
read: how long to receive car title in the mail
Once your loan is paid in full, the lien on your car title is lifted and the title can be released to you. At this point, legal ownership of the car is transferred from your lender to you.
how to get your title after paying off your car loan
once you pay off your auto loan, the lien holder must notify your state’s department of motor vehicles (dmv). they can do so electronically or by submitting specific documentation required by the state. Either way, they will tell your state that you are out of balance on your loan and that you are the sole owner of the vehicle.
“After you’ve paid off your car loan, you’ll have a ‘clean and clean’ vehicle title, which means you now own your car outright,” says Julie Shinn, Vice President of Administration for Lenders in rategenius. “Every time there are changes of ownership, the title must be updated.”
title change process varies by state
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The process involved in getting your car title paid depends on the laws of your state. some states take care of it entirely and others require you to do some hard work.
According to shinn, your lender will send you a lien release in states that require you to apply to get your title. this includes formal documentation that the loan is paid in full. From there, you’ll take those documents to your state’s DMV to get an updated title in your name only.
In other states, once the dmv is notified, they will automatically mail your car title to you without you having to do anything.
To find out the process in your state, visit your state’s dmv website.
how long does it take to get a title after the loan is paid off?
shinn says that in states where you have to file paperwork to get a new car title in your name, you can expect to receive your new title within two to six weeks of submitting the paperwork. but since the processing times of each state are different, the process can be longer or shorter.
nishank khanna, chief financial officer of clark capital, says states with dmvs that automatically send car titles can take less time, typically 15 to 30 days. however, processing and shipping time can drag things out, so be sure to follow up with a call, email, or in-person visit if you think it’s been too long.
final considerations on liens
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While it’s normal to have a lien on your vehicle, there are a few key details to remember. For example, a lien on your vehicle may prevent you from selling it, or at least make it significantly more difficult to sell, says Brian Dechesare of mergers and inquisitions.
This is based on the fact that you will need to pay off the car loan and gain access to the title before you can sell your car and transfer the title to someone else. You may not have the funds to pay off your car before the sale, and if you owe more than your car is actually worth, you’ll have to pay the difference.
dechesare also says the reverse is also true: you can’t receive a title to a car when you buy it from someone with a lien until you pay off the car. this makes buying a car with a lien a complicated ordeal. However, some DMVs have a lien lookup feature where you can find out who has the vehicle title and contact them directly.
As a result of these challenges, many drivers simply turn their cars in with a lien to their dealer when they upgrade. When you trade in your car at a dealer, you’ll be offered a trade-in value for your car that’s hopefully more than you owe. The dealer will arrange to transfer the title to his name so he can sell your car to someone else, taking you out of the equation entirely.
the end result
If you want to get title to your car after you pay off your car loan, you may not have to do anything but sit back and wait. But, in some states, a trip to the DMV may be in your future.
Either way, you should be proud that you paid off your auto loan. Consider your future finances before upgrading to a different car with a new payment, especially if your car is still in good condition.
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more information
- car title loans: what they are and how they work
- how to get out of a car title loan
- sell a car with a lien