Does a Bank Keep the Title When Taking Out an Auto Loan?

Some states don't release a vehicle's title to a borrower until the lien holder notifies the state that the loan is paid off. Other states send the title to the borrower but don't allow the borrower to transfer ownership without providing proof of a satisfied lien. Once you pay off your car loan, you'll receive the vehicle's title or a lien release.

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To find out about your state's rules and title release process, ask your lender for information or contact your state's motor vehicle department. If you just initiated your auto loan and live in a state that provides titles when a lien exists, it may take several weeks for your title to arrive. Most states don't allow title transfers without proof of a satisfied lien, so even though you have your title, there isn't much you can do with it until you pay off your loan.

Selling the Car Before the Loan Payoff

If you don't have your vehicle title and want to sell your car before you are finished paying your loan, you can do so without the title. Once you sell your vehicle, you can use the money from your sale to satisfy the car loan. After paying off the loan, you'll receive the car's title or a lien release. If your vehicle's value exceeds your loan payoff, you may keep the profit. If you owe more than the car's resale value, expect to pay your lender the remaining balance after the sales price to obtain your title or lien release.

Process of Obtaining a Title or Lien Release After Payoff

Check with your lender to find out about its title or lien release process before you arrange to sell your car or transfer ownership. If you live in a state that doesn't release titles to borrowers and your lender's payoff department is in a different location, for example, you might not receive your title for several months. Local lenders may provide an instant lien release when you pay off the loan. Dealerships in title-holding states don't need a title to complete the trade-in process. Your dealer will have you sign paperwork that authorizes it to receive the title after it pays your loan balance.

Considerations

If you're not in a rush to sell your vehicle after paying off your loan, you'll receive a title or lien release by mail. If you don't live in a title-holding state, you can remove the lien holder from your title by submitting a lien release and title application at a motor vehicle office. Otherwise, expect to provide a buyer or dealer with the car's original lien release and title. Keep your title or lien release in a safe place.