If you've recently purchased a car and are wondering why you haven't received the title yet, you're not alone. For many first-time car buyers, this can be a bit of a surprise, but in many states, the buyer does not receive the title until the auto loan is paid off.
Until then, the title is often held by an entity known as a “lienholder.”
A lien is essentially a legal right or interest placed on a vehicle until certain conditions are met. The party to whom that right belongs — the lienholder — is often, but not always, the financial institution or lender providing the loan for the purchase of the vehicle. By holding the lien, this third party secures the ability to obtain legal remedy — such as repossession — if required payments are not made.
Lienholder Insurance Requirements
While holding the lien ensures that the car can be recovered in the event of a loan default, it’s not a guarantee that the car’s full value can be recovered in the event of damage done to the vehicle. To protect the value of the vehicle, the lienholder often requires the borrower to maintain insurance coverage on the car. This can include:
Collision Coverage. This can cover the cost to repair or replace your car if it’s damaged in an accident with another vehicle or object, such as a tree.
Comprehensive Coverage. This coverage protects your vehicle in the event of non-collision damages such as theft or natural disasters. It ensures that if the vehicle is damaged or stolen, the repair or replacement costs are covered.
Keep in mind that both coverages also cover up to actual cash value, the amount equal to the replacement cost minus depreciation of the damaged or stolen automobile at the time of the loss. They also might be subject to the policyholder paying a deductible, the amount they must pay out-of-pocket before coverage kicks in. Deductible amounts need to be considered carefully, as they affect the premium: higher deductibles typically lower premiums, but mean you pay more out of pocket in the event of an accident.
It’s also worth noting that the term “full coverage” is often heard when discussing these different types of policies but be aware: there is technically no such thing as “full coverage.” It’s a sales term loosely associated with a collection of policies rather than a defined coverage. Speaking to a knowledgeable insurance agent can help you understand exactly what sort of coverage you need.
Are Liens Forever?
The legal rights secured by liens are designed to protect interested parties (such as a bank or a mechanic who has performed work on a car), but once all legal obligations are fulfilled, there is no further need for a lien. So, how are liens managed?
Adding or Removing a Lienholder. Whenever a lien is added or removed from a title, it is important to contact your insurance provider with the necessary documentation. Removing a lienholder typically happens once the loan is paid off, requiring a lien-release document. If a lienholder is added to a title, you must also contact your insurance provider to determine what coverages may be required.
Implications for Car Transactions. Liens should be cleared when buying or selling a car to ensure that there are no lingering obstacles to new ownership. If buying, you might need to pay off the lien directly to the lender. Selling generally requires settling the loan first to avoid complications.
Additional Coverages to Consider
In some circumstances, gap insurance might be suggested or required, especially if an auto loan or lease exceeds the vehicle's depreciated value. This insurance covers the difference — or “gap” — between what is owed and what the vehicle is worth in the event of a total loss.
ERIE’s Auto Security serves this purpose by ensuring you have adequate coverage to replace your new car. With this endorsement, if your new car (those less than two years old) is totaled, ERIE pays to replace it with the newest model year. Vehicles older than two years will be replaced with a model up to two years newer. helping get you back on the road in a newer vehicle with fewer miles, or you can choose to have us pay the difference between what you owe and the car’s value.
Lean Into ERIE
Erie Insurance knows the ins and outs of vehicle coverage — particularly when it comes to protecting you from unexpected out-of-pocket costs. Talk to a local ERIE agent today, and we’ll help you get the right coverage for your car.
The endorsement is sold on a per-vehicle basis, not per policy, and contains the specific details of the coverages, terms, conditions and exclusions. Coverage is not available in New York or North Carolina. Eligible vehicles must carry both comprehensive and collision coverage and replacement value must be based on a comparable model. See individual policies for specific coverage details. New vehicle replacement and better vehicle replacement do not apply to leased vehicles. Vehicle is considered new when less than two years old and not previously titled. Auto lease/loan component and repair coverage applies to a leased vehicle. Coverage does not include items such as overdue payments and carry-over balances from previous leases/loans, etc. When payment is made under new vehicle replacement or better vehicle replacement, auto lease/loan or repair coverage will not apply. Insurance products are subject to terms, conditions and exclusions not described here. Ask your ERIE agent for details.
ERIE® insurance products and services are provided by one or more of the following insurers: Erie Insurance Exchange, Erie Insurance Company, Erie Insurance Property & Casualty Company, Flagship City Insurance Company and Erie Family Life Insurance Company (home offices: Erie, Pennsylvania) or Erie Insurance Company of New York (home office: Rochester, New York). The companies within the Erie Insurance Group are not licensed to operate in all states. Refer to the company licensure and states of operation information.
The insurance products and rates, if applicable, described in this blog are in effect as of January 2024 and may be changed at any time.
Insurance products are subject to terms, conditions and exclusions not described in this blog. The policy contains the specific details of the coverages, terms, conditions and exclusions.
The insurance products and services described in this blog are not offered in all states. ERIE life insurance and annuity products are not available in New York. ERIE Medicare supplement products are not available in the District of Columbia or New York. ERIE long term care products are not available in the District of Columbia and New York.
Eligibility will be determined at the time of application based upon applicable underwriting guidelines and rules in effect at that time.
Your ERIE agent can offer you practical guidance and answer questions you may have before you buy.
