When Financing a Car Who Has the Title?

The person under whose name your house is registered is the legal owner of your house and thus has rights over it, like the right to sell it. Similar is the case with other assets like cars; they belong to someone.

This belongingness can either be formally documented or applied. This article will discuss the Title of financed cars in detail.

In everyday buying and selling, ownerships are transferred directly from the seller to the buyer as prices are paid in full.

But in the case of car financing, the transfer of ownership is not that easy. A car financing is like a deal between two parties in which one party, the lender, grants a loan to the second party; the borrower, for the purchase of a car provided that the borrower will return the amount in due time.

Both these parties have their stake in the car such as the lender wants his money returned and the borrower wants ownership of the car.

Therefore, the Title of the car is shared with the lender until the borrower has returned the total amount of the loan, even though the car is in use by the buyer.

This provides security to the lender if the buyer defaults as he can reclaim the car being its legal owner.

A car title depicts the following information related to the owner and the car:

  • Vehicle Identification Number (VIN)
  • License plate number
  • Vehicle make, model, and year of manufacture
  • Name and address of the registered user i.e. the buyer who is using the car
  • Name and contact information of the lender or lienholder.
  • Mileage at the date of sale
  • The original date of purchase

Importance of Holding the Car Title

Some people might not ever be concerned about the Title of their financed car because they are using it anyways.

But it is an important aspect of financed cars for the following reasons.

  1. If you plan on selling the financed car to someone else, you need to have ownership of it first. A car title is also necessary if you want to take another short-term loan and pledge your car against it. In this type of arrangement, the Title will be transferred to the lender who will use the car as collateral if you fail to pay loan payments. 
  2. If you are buying a pre-owned car, it is advisable to check the car title as it provides information like the times it was sold, the number of miles on the odometer, and the times it got into an accident. The National Motor Vehicle Title Information System (NMVTIS) is a national consumer protection database that provides vehicle title information to citizens of America.
  3. Obtaining the sole ownership of the car by car title is an assurance that you have paid off the entire amount of debt.
  4. Having exclusive ownership of your car you can freely exercise all legal rights. 
  5. There are instances when you have to prove your legal ownership of the car like taking debt from the bank or in case of an accident.
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Process of Transfer of Car Title

The process for transfer of ownership varies in different states of America. Out of fifty states of the US, forty-one states are called ‘title-holding’ because the lienholder or lender is listed as the owner in the car title document until the buyer pays the loan.

The remaining nine states; Michigan, Minnesota, New York, Arizona, Kentucky, Oklahoma, Wisconsin, Maryland, and South Dakota are known as ‘non-title holding’ because the Title gets transferred to the buyer within two to six weeks as soon as the car is delivered, regardless the loan is paid off or not.

In this case, the buyer is designated as ‘registered owner’, and the lender is listed as the ‘lienholder’ on the ownership deed providing security to him if the buyer defaults.

Once the debt is settled, the lender issues a ‘release of lien letter’ stating that he has no right to the vehicle whatsoever.

  1. In both title-holding and non-title holding states, a State Transportation Authority is involved in transferring car title. This authority is usually the local Department of Motor Vehicles (DMV) or it might be the government’s Department of Revenue.
  2. Once the loan has been completely discharged, the lender is responsible for notifying these authorities by sending in paperwork or through the Electric Lien and Title system (ELT).
  3. After being notified, some states require you to submit the lien release letter and other formal documentation like a bill of sale with the purchase price, an odometer disclosure statement and lien information, etc. with the DVM or other authority which will then send you the updated Title almost within 30 days. Other states do not require this additional step and send you the Title automatically after being notified about your credit position by the lender.
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Electric Lien and Title system (ELT)

An ELT system is a database that stores vehicle title information fed to it by the state DVM and the lenders who have registered on it.

Once the borrower has made the last loan payment, the ELT system receives an electronic lien release from the lender and forwards it to the DVM office. Now the DVM updates the car title and sends it to you.

The transfer of car titles comes about more rapidly and efficiently through the ELT system. Also, it eliminates the need for paperwork at the buyer’s end and the need for holding and mailing vehicle titles at the DVM office end.  

Conclusion

This was all about the Title of cars bought through financing. It might seem trivial to have a paper showing ownership of something that is physically yours.

But it has significant importance in car transactions like selling, lending, pledging, turning in, etc. Therefore, it is necessary to have a car title certificate to exercise full rights of possession and ownership over your car.

If you have purchased a car by paying in full, there is no problem with the Title. However, if you have financed a car title may remain with the lender until you have paid the full amount.

Some states in the United States follow Title holding model. It means the Title remains within the car’s lender until the full loan amount is paid back.

On the other hand, some states are non-title holding. It means the Title of the car is delivered to the buyer within 2-6 weeks of the car delivery. It’s irrespective of whether the loan is fully paid or not.

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Sometimes, people do not worry about the Title when using the car. However, the problem is when buyers need to sell the car. It requires them to have a title in their name.

In the United States, vehicle registration is tracked via Electric Lien and Title system. Department of the Motor Vehicle updates this system. It’s a central system that helps track car ownership.

Frequently asked questions

Do all states of the USA are Title holding states for the cars?

Forty-one states of the United States are title holding. It means the Title remains within the lender until the payment is made for the loan.

On the other hand, nine states are non-title holding countries. It means the title is transferred to the buyer within some time of the care delivery.

What is the salvage title of the vehicle?

These types of car titles are issued to a vehicle that is stolen, repaired extensively, or vehicles that were damaged more than 60%. However, such vehicles can be used on the road. Such vehicles are not granted a clear Title in the future.

What are the different types of vehicle titles?

There are different types of vehicle titles that include clear tile, bonded Title, lemon title, reconstructed Title, dismantled Title, junk title, etc.