Find out if your extra car loan payments will go straight to your principal and how these payments will affect your car loan.
Since a new car can cost a pretty penny, buying used is a lot more affordable for many Canadian drivers. Not only are sales prices lower in general, registering and insuring used vehicles is often cheaper. That said, there are still plenty of things to worry about when it comes to pre-owned cars, such as condition, mileage and previous accidents.
Prior to buying a used car, another very important thing to confirm is whether it has any liens. Keep reading to find out what a lien is and how to check if your car has one on it.
What Is A Car Lien?
If a driver finances a vehicle through a dealership, garage or lender, like a bank or private company, the party that they’re borrowing from will have an “interest” in the car. One of the most common scenarios is when a driver borrows a loan to buy their vehicle and the lender uses the car’s title as collateral or security until their debt is fully repaid.
As long as the debt is active, the car will have a lien registered against it, which means the lender still co-owns it’s title and has the legal right to repossess it if the driver doesn’t make their loan payments. According to CARFAX, 40% to 50% of Canadian vehicles currently have a lien on them. A car can also have more than one lien on it.
Reasons You Should Check For A Lien On Your Car
You may be wondering; why is it so important to check if my new-used vehicle has a lien registered against it before I purchase it? Well, there are 3 main reasons:
You May Be Responsible For The Previous Owner’s Debt
When you find a “good deal” through a private sale, it’s tempting to buy the car without checking its history first. However, just because the car changes ownership, doesn’t mean a lien will automatically disappear. Once the car’s title is signed over, you’ll become its owner and may be responsible for any remaining debt. On the other hand, dealerships are required to discharge all liens before selling a used car.
Unpaid Car Liens May Lead To Repossession
Unfortunately, not all sellers are trustworthy and if there are one or more liens on your car, you’ll probably have to take over the payments if you want to keep it. Otherwise, as the party with controlling interest, the issuer of the lien is allowed to repossess and resell the car to recover what’s owed to them. Then, not only will you have no car, the repossession may appear on your credit history and damage your credit score.
Penalties, Interest & Lower Creditworthiness
If you don’t pay back the debt or there are already missed payments on the car, you have to cover any interest or penalties that have accumulated too, which can lead to financial turmoil. Like a repossession, those missed payments will also harm your credit. When you apply for new credit in the future, lenders may see these black marks when inspecting your credit, which may result in rejection, lower credit amounts and higher rates.
What Do You Need To Check To See If Your Car Has A Lien On it?
Remember, if there’s an unpaid lien registered against your car, it must be cleared before you can legally drive it within your province or territory.
To truly find out if a car has a lien on it, you’ll first need to check its Vehicle Identification Number (VIN). You can use this 17-digit number to learn about the vehicle’s history. The VIN is typically found on the windshield (driver’s side) or the driver’s side door jamb, as well as on the car’s service, ownership and insurance papers.
Each provincial and territorial government has its own personal property security search resource for used cars. Keep in mind that a vehicle can be registered in multiple provinces or territories. While some regions require private sellers to inform prospective buyers about car liens, there’s no guarantee that they’ll actually do it, so it’s always a smart idea to check the vehicle’s history for liens yourself before you buy it.
Primary Ways To Check If Your Car Has A Lien On It
Although many Canadian drivers check for liens by looking up the car’s VIN in their provincial or territorial government’s database, there are 3 other ways of doing so:
Searching The Property Registration By Province
As mentioned, a car can be registered in more than one province or territory. Every province/territory also has different regulations for registering, insuring and licensing vehicles. Luckily, each provincial government offers an online search resource that you can use to check your car’s lien history (if you have its VIN). Watch out, as service fees may apply.
Asking The Seller For Information About The Liens
No matter who or where you‘re buying a car from, it’s extremely important to check for liens because they can stay attached to the car, making them your problem when the payments come due. Hopefully, the person you’re buying the car from is dependable enough to cover the full cost of their lien before selling it to you, but you never know.
In some provinces and territories, private sellers are legally obligated to inform potential buyers if there’s a lien on their car. For extra legal protection against a fraudulent car deal, ask the seller for the vehicle’s accident, repair and lien history, along with a written agreement stating that they will pay off any existing liens before transferring ownership.
Use CARFAX Canada To Check If The Car Has A Lien On It
Another surefire way to confirm whether a car has a lien against it is to perform a CARFAX Canada Vehicle History Report + Lien Check. One of these searches can help you access information, such as the:
- Name and address of the lender who holds the lien
- Name and address of the seller/debtor
- Agency that the debt/lien is registered to
- Type of collateral associated with the lien (classification)
- Details of business debtors (name, full address, corporation number)
In the report, CARFAX Canada will pinpoint any liens registered against the car. Similar to a government database, you’ll have to pay for this service. Currently, it costs $39.95 for a regular CARFAX report and $54.95 if you want to add a lien check to the package.
Can You Get a VIN Check For Free?
Even though the search won’t provide as many details, checking a car’s VIN is one of the most important things to do before you buy it. Thankfully, there are a few different places where you can obtain a free VIN check, including:
- Transport Canada – Like other databases, Transport Canada can offer you a free VIN check. They also take the search process a step further by identifying factory defects, recalls and other problems associated with your specific car type.
- CARFAX Canada – When you’re looking for a basic, free way of identifying your vehicle, CARFAX is the way to go. If you’re unsatisfied and wish to know more about a car, you or the seller can buy a vehicle history report for an extra fee.
- VIN Verify – At the Insurance Bureau of Canada, the “VIN Verify” tool lets you see if a car’s title has been branded or washed after a fire, flood, major accident or another disaster. You can also find out if it’s irreparable, salvaged or rebuilt.
Remember that the governing traffic bodies of most provinces and territories also offer vehicle search engines that you can use to get a free VIN check in your region.
CanYou Get A Vehicle’s History Report For Free?
A vehicle history report is a more extensive look at a car’s background. Because there’s more work involved, vehicle history reports generally cost extra. So, while most trustworthy dealerships and online retailers offer free vehicle history reports for used cars, many private sellers don’t want to pay for this service.
Since this is one of the only real ways to tell if a car has a lien on it, you may want to just buy and download the vehicle history report yourself. Despite the costs, the peace of mind you receive afterward is probably worth it. Here are some common examples:
- CARFAX Canada – Offers free VIN checks, as well as some of the most comprehensive vehicle history reports available. At the moment, it costs $39.95 for a basic vehicle history report and VIN check, and $54.95 with a lien check.
- AutoCheck – Offers free VIN checks too. For $24.99, you can get a vehicle history report with all the same information as a VIN check, along with details about the car’s title, registration, usage records and fleet records.
- VinAudit Canada – Is a newer company that also offers free VIN checks. It’s $14.95 for a car history report, which includes manufacturer buybacks via the Canadian Motor Vehicle Arbitration Plan (CAMVAP), recall record and more.
How To Remove A Lien From Your Car
Despite the risks of purchasing a car with a lien on it, there are some cases where a transfer of financing or lease is in order for a really good deal. However, if you’re not interested in taking over someone else’s car payments, you’ll have to get the lien removed, which can only happen when the seller/debtor repays what they owe.
Once that occurs, the lender will issue a notice that the debt has been discharged. You can then contact the provincial or territorial entity that governs the traffic laws in your region and ask for the vehicle’s record to be changed. Don’t forget to collect all documentation concerning the car and the lien in writing so there are no discrepancies.
How do I remove a lien on a car in a private sale?
What information do I need to do a lien search?
Can I get a free VIN check through Carfax?
What happens if the car I buy still has a lien on it?
The Importance Of Doing A Lien Check For Your Car
As you can see, finding out that there’s an unpaid lien on your car can be a huge and expensive hassle, especially if you bought the vehicle without knowing it. For that reason, it’s a good idea to get a full VIN check and vehicle history report, no matter the price. Contact your local traffic authorities for more information about the regulations and requirements for car lien checks in your province or territory.
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