When you take out a vehicle loan, your loan holder assigns a lien to your vehicle title. A lien is a legal right to the title; you cannot sell or dispose of the vehicle without the lien holder's permission, and if the vehicle is destroyed in an accident, your lien holder receives the insurance settlement. In some cases, you can transfer the lien to a new owner if you sell the vehicle.
Written Authorization
If you want to sell a vehicle you currently make payments on, you usually have to obtain written permission from the lien holder. In some cases, the lien holder may require you to use the profits from the sale to pay off your vehicle loan. However, if the lien holder agrees in writing, transfer the lien to the new owner by filling out a form.
State Laws
State laws vary regarding the assignment and transfer of vehicle liens. In some states, such as Kansas, add blood relatives to the title as long as you remain on the title as well. Other states require you to apply for a transfer of paper title regardless of the circumstances of the transfer. States also charge varying fees for transferring a lien to a new owner.
Repossession
When a debtor defaults on his vehicle loan, the lien holder has the right to repossess the vehicle and resell it. After resale, the lien holder reassigns the title to the new owner. Depending on state law, the lien holder may have to provide notice to the original owner of the sale and of any right to redemption of the original debt to which the debtor is entitled.
Fraudulent Transfers
If a debtor attempts to sell a vehicle without telling the buyer a lien exists on the vehicle or obtaining written permission from the lien holder to transfer the lien, most states consider the title transfer fraudulent. Debtors who do this may face criminal charges for fraud. In some states, the seller may not be guilty of fraud if he repays the balance of his vehicle loan within 30 days of making the transfer, even if he does not inform the buyer of the transfer at the time of sale.
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