In 2020, borrowers refinanced their car loans earlier into their term, the lowest since 2013. Last year was a big year for auto loan refinancing. Nearly all states registered more auto loan refinance applications, and 16% more Americans applied for refinancing in 2020 compared to 2019. Borrowers also chose…
If you’re buying, selling or refinancing a car, you’ll need to know how a car title works.
Car titles are just as important as cars themselves. They’re one of those legal documents that are used in a variety of scenarios. However, there is often confusion about what they are and how they work.
Once you understand the ins and outs of car titles, you can protect yourself during the buying, selling, or refinancing process.
What Is a Car Title?
A car title is a legal document that shows proof of ownership of a vehicle. You can think of it as your car’s birth certificate. It includes key information about the history of your vehicle, which are particularly important during the car buying, selling, and refinancing process.
If you lose your car title or need a new one because it’s been stolen or destroyed, you’ll need to visit your state’s Department of Motor Vehicles (DMV) to request a replacement. They’ll likely ask you to complete an application and pay a fee.
What’s on a Car Title?
While car titles vary by state, most of them contain the same general pieces of information including:
- Vehicle VIN: VIN stands for vehicle identification number. The 17-digit VIN of a car will remain the same, regardless of who owns it. It’s often used to track vehicle ownership, accidents, repairs, and maintenance.
- Make and model details: This section will mention the brand of the vehicle, such as Toyota and the name of it, which may be Camry. The year the vehicle was manufactured as well as special engine or trim upgrades may also be included.
- Odometer reading: The odometer reading indicates how many miles were on the odometer when the car was bought or sold. Most states require that the current mileage is listed on the vehicle title any time there is an ownership transfer.
- Assignment of title: Assignment of title shows change of ownership. It includes two parts, one for the vehicle seller and one for the buyer. Once a car is sold, this section must be completed before the new owner receive the title.
- Lien holder: If the vehicle is being leased or financed, the current lien holder (usually a bank, credit union, or auto finance company) will be listed. In most states, the lien holder will have possession of the title until the car loan has been repaid in full.
- Vehicle weight class: Weight class is directly correlated to how much it will cost to register a car on an annual basis. Generally speaking, the higher the weight class, the more the vehicle will cost to register.
Types of Car Titles
If your vehicle is free of significant damage that would prevent it from being sold, it will likely have a clean title. A clean title is the most desirable type of title and often times, the only one that will qualify you for an auto loan. Here’s an overview of several of the other types of car titles.
- Clear titles: Your car will have a clear title if you own it free and clear and there is no lien on it that prevents it from being sold. Even though the terms clean titles and clear titles often get used interchangeably, they’re not the same.
- Lemon law titles: A lemon law title will apply to your car if it was returned by the manufacturer because of substantial defects covered by the lemon laws in your state.
- Salvage titles: If your vehicle was involved in a serious accident and sustained damage of 75% to 90% of its value, it’ll receive a salvage title. A salvage title means that your car has been deemed a total loss.
- Junk titles: Your car will earn a junk title if gets sold to a junkyard for scrap metal or its parts. Some states consider salvage titles and junk titles to be the same.
- Flood titles: A flood title may be issued to your car if it’s faced major water damage from a flood. Water stains, sand, mildew, silt, or fogging in headlights and taillights are all signs of a flood-damaged vehicle.
- Rebuilt or reconstructed titles: Your vehicle may have a rebuilt or reconstructed title if it’s been significantly repaired or transformed and now passes the DMV inspection standards in your state.
- Odometer rollback titles: Odometer fraud occurs when a vehicle is sold with an incorrect odometer reading. Your car may have an odometer rollback title if there is a reason to believe that the odometer was played around to show fewer miles than what were actually driven and increase the car’s value.
Car Title vs. Registration
Titles and registrations are both issued by government agencies. However, there are noteworthy differences between these two documents. Here’s a closer look at the definition of each of one.
A car title establishes the legal owner of your vehicle. In most cases, a dealer will handle the car title process on your behalf, when you buy a new car. If you refinance your car loan, however, the lien holder will change and your title will need to reflect that accordingly.
The vehicle title may be issued to your lien holder until you’ve paid the car off completely. It may also be issued to the registered owner of the car, no matter if there is or isn’t a lien. This depends on the state you live in.
Simply put, a car registration proves that you’ve registered your vehicle with the transportation agency in your state. While each state has its own set of unique requirements, most states require that your vehicle passes an inspection, you have car insurance, and you’ve paid all the applicable fees. As long as you have a car registration, you are legally permitted to drive your vehicle.
How does the car title process impact registration?
If you wish to complete any car title process, your registration must be in good standing. In the event you have registration issues such as parking tickets, unpaid taxes, or toll violations, you can expect major delays.
Therefore, it’s a good idea to check your car registration and make sure you’re in good shape before you attempt to do anything with your title.
What is a Title-Holding State?
If you live in what’s known as a title-holding state, the title of your vehicle will be issued to the registered owner or operator. This holds true regardless of if a lien holder is present.
Your lien holder will receive a document that explains how they’re connected to the loan. However, you’ll be in possession of the title itself. Currency, there are nine title-holding states including:
- New York
If you don’t live in a title-holding state, your vehicle title will be issued to your car’s lien holder until you pay it off in full.
How Do I Transfer a Car Title?
As stated, a dealer will likely handle the car title transfer process when you buy a new car. If you’re a private party who would like to buy or sell a vehicle, it’s your responsibility to transfer the title. While the car transfer process depends on your state, it will likely consist of two steps:
- First, the seller will sign the title and release ownership of the car.
- Next, the buyer will take the signed title to the DMV so the state can issue a new registration and title.
Your state may require a bill of sale, a transfer of ownership form, or another document to complete the process. In addition, they may ask for basic information about the vehicle such as the current odometer reading and sales price.
Fortunately, many states allow the title transfer process to be completed online. In Arizona, for example, electronic title transfers are available. When you transfer a title, you’ll no longer receive a paper form. Instead, your title details can be found on your AZ MVD Now account.
In Michigan, however, you’ll need to schedule an appointment with a Secretary of State branch office. The state requires that both the buyer and seller attend with their driver’s licenses. North Carolina will also ask that you physically visit a DMV office to transfer a title. Or you can complete certain forms, pay a fee, and mail in your information.
For exact details on how to transfer a car title in your state, check with your DMV.
When I Refinance My Auto Loan, Do I Need to Transfer the Title?
At some point in time, you may decide to refinance your auto loan. By doing so, you can secure a lower interest rate and save hundreds or even thousands of dollars on the life of your loan. If you go this route, understand that you will need to transfer your car title.
Fortunately, there’s a good chance that your lender or broker will take care of this process. (RateGenius does.) All you’ll need to do is sign a power of attorney form, which will grant your lender or broker the right to take action on your behalf.
Car Titles Are Important
Whether you’d like to buy, sell, or refinance your vehicle, it’s essential that you know what car titles are and how they work. This way you’ll be well-prepared when it comes time to fill out or sign a car title.
If you have any questions about car titles in your state, don’t hesitate to contact your local DMV. They’ll answer any questions you may have and make sure you’re well-informed on these vital documents.