What is a Lienholder on a Purchased Vehicle?

A car dealership representative holding a calculator and presenting a car loan agreement to a buyer that would result in a lienholder on a purchased car.There are few things more exciting than purchasing a new car. Since cars cost a hefty sum, it’s not out of the ordinary to not have the means to pay for them upfront. This is where you can rely on financing or a car loan. With a loan, you can take your car home while committing to monthly payments for a fixed term. When you enter into a loan, you are signing a binding agreement between you and an entity known as a lienholder. Let’s discuss the purpose of a lienholder on a purchased vehicle and what that means for your financials and insurance.

What is a Lienholder?

A lienholder – often known as the lender – is an institution or third party who has a legal interest in your vehicle. When you purchase a car, the lienholder provides funds through the car loan process. Once you agree to a car loan, a legal claim – or lien – is created on behalf of the lienholder to protect themselves and secure full right of possession until the loan is completely paid. If you default on the loan, this claim allows the lienholder to repossess the car. On the other hand, if you manage to complete your loan payments, the lien is released, and you are given ownership of the vehicle title.

How Long Does a Lienholder Have Legal Claim Over My Purchased Vehicle?

Car loans typically come in increments of 12 months. The most common car loan terms are from 24 to 72 months. Your monthly payments depend on the term length of your loan, along with the price of the car and interest amount. A 72-month loan can make your payments lower, but you’ll end up paying more interest in the long term. On the other hand, for shorter loans, the opposite is true. However, with inflation drastically increasing the price of vehicles, there are far more long-term loan borrowers.

What Are My Options if Financing is Outside My Budget?

If financing a vehicle falls outside your budget, another option to consider is leasing a car. When entering a lease, you can usually get a higher-end vehicle while having relatively low monthly payments. Also, regular maintenance costs are usually covered by the lessor of the vehicle, not the lessee. However, that are some restrictions that accompany a lease, such as a mileage cap. If you find you’re in a better financial position by the end of your lease, you can often enter a financing agreement to pursue full ownership of the car.

How Does Having a Lienholder Affect Your Auto Insurance?

Lienholders want to safeguard their investment, which is why they require you to have full auto insurance coverage. You will not be able to rely on liability insurance only, and your bodily injury and property damage limits need to be increased. A breakdown of a lienholder’s insurance requirements includes:

Once you finish paying your loan and receive the title, gap insurance or lease insurance won’t be needed any longer. Also, you can choose to remove comprehensive and collision coverage – though that will leave you open to expensive liabilities.

When you have a lienholder on a purchased car and monthly insurance payments, the costs can quickly add up. Fortunately, at TJ Woods Insurance, not only can our agents pair you with an auto insurance policy, but they can also shop around for the best coverage and price, uncover bundling opportunities, and inform you of any discounts that will lower your premiums. If you’re looking to protect your new investment without breaking the bank, contact us today.