Who Keeps the Car Title During Financing?

Published on Dec 25, 2013 06:15 am

Just as real estate has a deed, a car has a title. The title is a document that describes the ownership of the vehicle. Depending on the state you live in and the type of auto financing you have, you or your lender may hold onto the title. Whether or not you have the title document though, you can still drive the car and can still sell it, as long as you can pay off the loan.

What is a vehicle title?A vehicle title is the actual ownership document for the car. In addition to describing the owner’s identity, it also contains information on the car. Although they can vary from state to state, title documents typically include the car’s original purchase date, vehicle identification number and registration number. The title also includes whether the vehicle was bought new or used, and states the odometer reading at the time of the transaction.

Who holds the car title during a loan?Most lenders will hold the title of the vehicle for the entire duration of the car loan. After the loan is paid off, the lender removes itself from the title and sends a copy of the document to the owner. While receiving a copy of the title is one way to be sure that a car loan is paid off, another is to review your credit report and see if the car loan shows as having been paid in full.

Title Vs. LienJust because you hold the piece of paper that serves as certificate of title doesn’t mean you own the car free and clear. Regardless of who holds the piece of paper, if a lienholder is listed on the title, that lienholder has a right to the car. While the lienholder could be a lender, it could also be a co-buyer or even a family member who once had ownership rights to the car. To remove that lienholder, you will have to either have him sign a document releasing his rights – and your car’s title – or have a court remove him from the title.

Title LoansOnce you have paid off your car and control your title, you may have the option of pledging it for a loan. Some states allow car title loans where you can receive a short-term loan, secured by your car. When you take out one of these loans, your car is collateral, meaning that if you don’t make your payments, the lender can seize your car. Sometimes, these loans have very high interest rates.

If you’re looking to sell a car you financed or take a loan out on a new vehicle in the near future, understanding how loans work is an important first step. Regularly checking your credit report and understanding the role your credit worthiness plays in the auto loan process is also important. Be sure to check with your lender or a financial advisor if you’re still unsure about whether or not financing a car is the right choice for you.

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About the Author
Solomon Poretsky has been a writer since 1996, with experience in the fields of financial services, real estate and technology. Poretsky holds a Bachelor of Arts in political science from Columbia University.

This article is provided for general guidance and information. It is not intended as, nor should it be construed to be, legal, financial or other professional advice. Please consult with your attorney or financial advisor to discuss any legal or financial issues involved with credit decisions.

Published by permission from ConsumerInfo.com, Inc.  © 2013 ConsumerInfo.com, Inc.  All rights reserved.

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