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Is a Car Loan Considered a Lien?

A definition of a lien is:  a lender’s claim against a collateral asset that may be legally sold should the borrower fail to repay a loan. When you get a car loan, the lender will place a lien on the title of the vehicle to insure that they are able to recoup all or a portion of the money that they are risking if you fail to continue making your payments as agreed. Basically, it gives them the right to repossess the vehicle in the event of a default. The only way to clear a lien is to pay the loan in full.

Liens Equate to Lower Rates of Interest

A lien helps the borrower somewhat. The lien makes the asset (the vehicle) recoverable. Loans that have recoverable assets tied to them are less risky. The less risk that a loan carries, the lower the interest rate. That means a lien could save a borrower hundreds of dollars in interest over the life of a loan. Without a lien, the loan would not be secured by any collateral, meaning the lender would have to charge much higher rates to manage their risk in a way that keeps them in business.

Can You Get a Car Loan without a Lien?

Generally speaking, you must have excellent credit to get a loan without a lien. If you have bad credit, you can expect to have a lien placed on the title of any vehicle you finance. No lender will consider lending to such a borrower otherwise. Without a lien, they are risking ALL of the money they lend you, not just the portion of it that can’t be recovered at auction should the vehicle be repossessed. This is a massive, insurmountable disparity in risk that really makes a lien-less loan for someone with bad credit an unrealistic proposition.

About the Author

The author has many years of experience in automotive finance and insurance. However, each consumer's situation is unique. It is best to contact a finance specialist for further assistance.
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