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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.
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.
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:
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.
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.
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.
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.
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:
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.
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.
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:
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.
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:
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.
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:
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.
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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Bryan is a graduate of Dawson College and Concordia University. He has been writing for Loans Canada for five years, covering all things related to personal finance, and aims to pursue the craft of professional writing for many years to come. In his spare time, he maintains a passion for editing, writing screenplays, staying fit, and travelling the world in search of the coolest sights our planet has to offer.
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