October 3, 2023

It’s rare that a person pays for a new or late model used vehicle with cash. Instead, you’ll likely make a partial payment and finance the remaining balance with an auto loan. A dealer may also allow you to finance 100% of the cost of acquiring a new or used car. 

The Lender Will Put a Lien on the Vehicle

An auto loan is considered to be a secured debt with the vehicle itself serving as collateral. If you fail to make a payment, the lender has the right to seize the car and sell it at auction. In the event that you decide to sell or trade the vehicle, the lien must be satisfied before a dealer or private buyer can obtain the title to it. Negative equity can either be paid in cash at the time of a sale or rolled into a new loan if you’re trading your current car for a different one. 

What Happens After the Loan Is Repaid?

When the loan has been fully repaid, the lender will release the lien on the car. You should receive a letter from the company that services the loan acknowledging that this has taken place. The status of the loan should also be changed from current to paid in full on your credit report. After this happens, you have full ownership of the vehicle and can transfer the title to another party at any time. 

Can You Have Multiple Liens on a Car Title?

If you have positive equity in your car, you may be tempted to apply for a title loan or secure other types of financing using the vehicle as collateral. However, most lenders do not want to compete with other parties to get paid in the event of a default. Therefore, it’s unlikely that you’ll be allowed to have two liens on your car’s title at the same time. 

Financing a vehicle can be an effective way to obtain reliable transportation without depleting your savings account. However, it also means that you don’t have a clear title to the car until the lender has been repaid in full. A dealer or financial institution representative may be able to answer any questions that you might have about a vehicle loan and what rights you have during the repayment period.