When you’ve paid off the balance of an auto loan, your bank or lender should send you one of two documents: either a certificate of title or a lien release. But what’s the difference between the two and how do they relate to one another?
How does a vehicle lien work?
Your lender, who has loaned you money to purchase a vehicle, places a lien on your title until the loan is paid off in its entirety. A lien is a claim on the property for the security of payment. When a lender loans a borrower (you) money to purchase a vehicle, they want to make sure that they are paid back plus interest. Your lender, also known as your lienholder, will remain printed on the front of your vehicle title until the loan is paid off. A lien on a vehicle title is a cloud on the title that places a hold on ownership; once it’s paid off, you can get a title for your car or you can sell it or trade it in.
What is a lien release?
A vehicle lien release is a document that officially declares that the lien on your vehicle title has been removed and you will be free to take action with your vehicle. This document removes any restrictions on what you can do with your car. A person is typically eligible for a vehicle lien release when the loan on the vehicle has been paid back to the lender.
What is a certificate of title?
The vehicle title, also known as the certificate of title, is a legal document issued by the department of motor vehicles in your state that assigns ownership over a particular vehicle. In addition to serving as proof of ownership, the vehicle title may also be used to transfer ownership of a car.
Is a lien release the same as a title?
No, the lien release and certificate of title are two different documents. While they both state the official owners of the vehicle, the lien release is needed to remove the lienholder from the title. Until the lienholder is removed by providing a lien release to the DMV, they will remain as a security interest on the title.
Do lenders hold onto the certificate of title until the lien is satisfied?
Some states, known as title-holding states, require your lienholder to retain your certificate of title until the lien is satisfied. Once the lien is satisfied, the lienholder should not only send a lien release, but also the certificate of title that was retained. Both of these items will be used to transfer the title out of the lienholder’s name.
Non-title-holding states will send the vehicle title with both the owner’s name and the lienholder’s name to hold onto until the loan is paid off. A lien release is still required in this case to remove the lienholder’s name, even though the title resides with the owner.
All in all, a lien release is not the same document as a certificate of title. The lien release document is what is needed to clear the lienholder from the title and transfer it to a clear title in your name once the lien is satisfied.