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What’s a Car Lien and Why is it Important?

When you’re shopping for a used car, it’s important that you check the vehicle for an outstanding lien. It’s pretty common for a car to have one – 37 percent of vehicles searched by CARPROOF do. If you don’t know about it before you buy, you could end up responsible for the previous owner’s debt – and have your vehicle repossessed. To help you make an informed decision when you’re buying a used car, we’ve explained what a lien is, and why you should always check this before buying a used car.

What is a lien?

It is an interest in the car that the owner grants to another party (such as a bank, financial institution, or other party), usually as security or collateral for a debt, until such debt has been discharged. As an example, if you own a vehicle and you finance all or some of that vehicle with a bank, your vehicle will likely have a lien registered against it by the bank. The vehicle is the bank’s “security” that you will pay back the money they loaned you. If you don’t pay it back, they could repossess the vehicle.

Watch this video for a quick recap:

How is it different from a loan?

A car lien is the right that a lender has against the vehicle, while a loan is the money that you have been lent. Above we explain how it works when you borrow from a bank to finance a vehicle purchase. If you borrow money in a different way and use it to finance your vehicle, you will have taken out a loan, but it won’t necessarily be secured by a lien. For example, if you have a line of credit and borrow against that to pay for the vehicle, you will have been loaned that money, but there won’t necessarily be a lien against the vehicle.

Why is it important to know?

If you purchase a used car that still has a lien on it, you could end up responsible for the unpaid debt. If you discover one on a vehicle you currently own, the secured party may be able to repossess the car from you. This makes it a pretty important detail to know.

How do you check for one?

CARPROOF offers a variety of vehicle history report options, including its Verified report. CARPROOF Verified reports check for liens in the Canadian province or territory where the vehicle was registered or had its registration renewed within the past year.

What information is available on a CARPROOF report?

If any are discovered, the report will identify and provide (to the extent this information is made available to us):

  • The name and address of the person who owes the money (individual debtor)
  • If a business owes the money, the package will have the business debtor’s name, the corporation number, and the full street address
  • The name and address of the lender (the secured party)
  • The place where the debt is registered (registering agent)
  • The collateral classification (vehicle)

Don’t be afraid to ask questions about the specifics from both the seller and the secured party. As the buyer, it is your responsibility to get all the information you need to buy a used car with confidence.

The report will also give you information about the vehicle’s damage history, registration history, any unfixed recalls and more. It’s a crucial part of the used car buying and selling process.

What if the vehicle has a lien registered against it?

Discovering a lien registered against the vehicle you’re considering doesn’t have to be a deal-breaker, but it’s important to take action. Just communicate with the seller and ensure that the it is discharged before you close the deal.

Can you sell a car with one?

While car dealers are legally required to clear any liens that are registered against a vehicle before they sell it, it’s not quite as simple when you buy privately. Depending on the province you live in and its regulations, it is possible to buy and sell a vehicle with an active lien, so be sure to check for one before you close the deal.

How do you remove one?

Liens must be discharged by the provincial body that governs transportation in your province. If you’re buying from a dealer, they will take care of this for you, but it’s a fairly simple process for private buyers and sellers as well.

Check out this handy guide for more information about finalizing a private used car sale where you live, including contact information for your provincial transportation authority.