Can I Refinance With a Lien on My Car 

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Having a lien on your car could make it difficult if you’re looking to refinance your auto loan.

If you didn’t pay cash for your car and are making monthly loan payments, odds are you might have a lien on your car. When you take out a loan to finance a vehicle, the lender will put a lien on your car until you pay the loan off.

This is just one type of lien, but there are other types of liens you could have on your car. Refinancing with a lien on your car is possible in some cases. Here’s what you need to know if you’re considering this option.

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What Is a Lien? 

A lien is a legal claim used to secure a debt. Auto loans are considered secured debt since the car itself serves as collateral. The lien basically acts as insurance for a lender allowing them to take back possession of the car if you’re not able to pay the loan back.

A bank, credit union, finance company, or online lender can all be lien holders if they provide you with an auto loan. Your auto lender is usually the lien holder for your car and they will hold the car’s title, as well. As the lien holder, your auto lender can also require you to have a specific type of auto insurance to further protect their interest.

There are different types of liens, and many can be put in place without your permission. A creditor or lender can put a lien on your home. Or, you can have a federal or state tax lien if you don’t pay your property taxes. If you go to court and are ordered to pay money to the other party as a judgment, a lien can be placed on your property if it’s not paid.

You can find lien holder information for a motor vehicle by visiting your state’s DMV website, by taking a look at your copy of the title (if you have it), or downloading a vehicle history report using the car’s Vehicle Identification Number.

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Can You Refinance a Car With a Lien on It? 

In short, yes, you can refinance a car with a lien on it, but it depends on the type of lien. If your lien is from your lender due to having an auto loan, it should be fairly easy to refinance. To refinance your car, you will need to send the vehicle title to the company you’re choosing to refinance with.

There are a few ways to do this depending on which state you live in. There are only nine title-holding states which include: Kentucky, Maryland, Michigan, Minnesota, Missouri, Montana, New York, Oklahoma, and Wisconsin. This means, if you live in one of these states, your car’s title will be sent to you as well as your lien holder. The remaining 41 states are non-title holding states meaning your title will be sent to your lien holder only.

If you’re in a non-title holding state and looking to refinance your car, the new lender can request the title from your lien holder since it’s required to complete the process. When you refinance your vehicle, you’ll pay off your existing car loan, and then you’ll owe the new lender based on the terms you agreed upon for the new loan.

The new lender should be able to request a lien release and updated title from your old lien holder once the balance has been paid. Next, the new title will go to either you or the new lien holder (lender you refinanced with) depending on your state.

Let’s say there’s another type of lien on your car, such as a judgment lien or a tax lien. It will be much harder to qualify for an auto refinance, and if you do, it’s often more expensive. Although certain liens, like a tax lien, won’t show up on your credit report, it will be hard for a new lender to get a clear title for your vehicle to be able to refinance it.

As with any type of auto loan refinance, you’ll want to check your credit and calculate how much you could save with a lower interest rate.

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Refinancing Your Car With a Lien for Back Child Support 

If you have a legal court order to pay child support, it’s important to keep up with payments. Failure to pay child support on-time could result in an accumulating balance commonly known as back child support. The state you’re in can try to collect this back child support through wage garnishment, suspending your driver’s license, or placing a lien on your home or property, like a vehicle.

If you have a lien on your car from back child support, most lenders will not approve you for an auto refinance. Most lenders have agreements stating that they must be the first and only lender listed on the title.

This means if there are additional liens on the loan, you’ll need to settle them prior to applying to refinance, or you might not get approved.

Some lenders might be willing to refinance your auto loan even with a second lien. They often place dollar amount limitations on these loans that typically are lower balances that might not cover the total amount owed on the vehicle. This makes rates much higher which could defeat the purpose of refinancing your car in the first place.

Are Rates for Refinancing an Auto Loan With a Lien Higher?  

Refinancing rates can vary depending on a variety of factors such as your credit score, debt-to-income ratio, as well as the type of car lien. Generally, interest rates are based on market rates as well as the level of risk the borrower would pose to the lender.

If you have a lien on your car from another lender, it’s fairly easy for the new lender you’re refinancing with to get an updated title to state that they are now the lien holder. This can be done as soon as the loan is funded and the previous lender is paid off.

However, issues might arise when other types of liens are placed on your car. Since you might not be able to get approved for an amount that’s high enough to repay your existing auto loan (as stated in the previous section), you’ll pay more interest and fees to make up for this to reduce that risk to the lender.

Be sure to shop around for auto refinance rates before you choose a lender. You can use a marketplace to get offers from a network of lenders so you can review the loan term, loan amount, and interest rate closely before making a decision.

What rate can I get? What rate can I get?

How to Sell or Trade In Your Car If There’s a Lien on It 

You can always sell or trade in your car even if there’s a lien on it. You’ll just need to transfer the title to the new owner’s name. If you’re selling your car to a private party, arrange an agreement where the borrower can give you the payment, then go with you to pay off your lender, and update the title.

Or, if you’re looking to trade in your car at a dealership, they can easily handle the title transfer. The process of transferring a title varies by state, so if you’re going to your local title office or the Department of Motor Vehicles in your area, be sure to check their requirements beforehand. Sometimes, you can request to change the title online. You might need the following information:

  • Bill of sale or the sale price
  • The car’s odometer reading
  • Buyer’s name and contact information
  • Fees for the title transfer and sales tax (if applicable)

The process of transferring the car’s title will be much easier when the lien holder is an auto lender.

With other types of liens, you’ll want to pay off the loan or settle the judgment you have in order to clear the title. It’s nearly impossible to sell or trade in a car that has a property, tax judgment, or other type of lien since you won’t be able to transfer the title to the new owner.  The new owner needs to have the title in their name so it can be properly registered with their state.

Taking the Next Steps to Refinance With a Lien 

Refinancing your car with a lien is possible, but there could be a few more hoops to jump through. Different types of liens present an issue if they prevent the title from being transferred to the new lender when you refinance.

Although some refinancing companies prefer not to deal with different types of liens, at all, others will work with you but for a fee and higher interest rate. It’s important to make sure that refinancing your car when it has a lien on it makes sense for your situation and finances before moving forward.

If you might be considering refinancing your car in the future, take the time now to find out if there’s a lien on the vehicle. This could give you time to pay off a debt you owe or determine the next steps to prepare for a refinance application.

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About The Author

Choncé Maddox

Choncé Maddox is a Certified Financial Education Instructor (CFEI) and personal finance freelance writer. Her work has been featured on LendingTree, CreditSesame, and Barclaycard. She earned a Bachelor's degree in Journalism and Communications from Northern Illinois University and resides with her family in the Chicago area.

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