Car Liens: A Definition

Car liens are an aspect of an auto loan. They are primarily used to protect the lender, usually a bank or credit union, in the event that a car buyer defaults on their payments.

Simply put, a lien is a legal document stating the bank has the right to repossess your car if you do not stick with your payment plan. As an additional safety net, collision and comprehensive insurance are typically required on vehicles purchased with an auto loan.

An unsecured loan is made with no lien attached. This means that the person giving the money for the loan has no legal right to take a vehicle from its owner.

In many states, while a lien exists on a vehicle, the lender holds possession of the vehicle's title. Before a vehicle with a lien is sold, the balance of the loan must be paid off for the lien to be released or other, special arrangements have to be made for the new owner to take over payments.