An auto lien is an agreement that allows a loan provider to legally take the vehicle from the loan recipient if the recipient does not repay the loan as agreed on the date of purchase. Liens are a consequence of agreeing to a loan, and protect the loan provider from loss.
An individual often requires a loan to purchase a new vehicle. When the lender signs a loan agreement with the vehicle purchaser, the loan provider places a lien on the vehicle being purchased. This guarantees to the loan provider that, in the event that the car buyer does not pay the loan, they may repossess the vehicle and sell it to recover their funds. The lien holder is also guaranteed that the vehicle purchaser acquires appropriate protections to safeguard their mutual investment. This includes maintaining a full-coverage insurance policy, and the level of deductible allowed on the insurance policy.
A lien may also be placed on a vehicle when the automobile is entered as collateral on a personal loan. This type of loan contract works in the same way as a car loan. If an auto is not entered as collateral on a loan contract, a lien is not in place and the loan provider has no claim to the vehicle.