What A Car Lien Is And How Having One Can Affect Insurance Claims

When purchasing a vehicle, there are several payment options that a consumer can use. In some cases, they may want to pay off the entire balance with cash. To be honest, the majority of people need to seek the services of a financial institution to secure a loan to pay for their automobile, especially if it is a brand new one.

If this is the case, there will be a lien placed on the vehicle. What exactly is a car lien? Basically, when a financial institution agrees to lend you money to pay for a brand new car, they have co-ownership, or financial interest, in the vehicle. After all, it was their money that was used to purchase it. When you go to place insurance on your car, you must advise the insurance company of this lien. Both the financial institution and the insurance company work together in this regard. You cannot have a policy issued without the papers naming you and the financial companies as the registered owners. In turn, you cannot drive the car off the lot without proof that you have secured auto insurance. You also cannot have the vehicle registered without the insurance, and the registration has to show both of you as the registered owner. Once the full amount of the loan has been paid off, the car lien will be removed.

Now, what happens if you make a claim on a vehicle that has a lien on it? In a normal situation, if your car has been deemed a total loss, and you own the vehicle outright, you will receive a check from your insurance company for the whole amount. But, when there is a lien on it, you are not the only one who has financial interest in the vehicle. Car insurance claims made for these vehicles are handled in a slightly different method. If the vehicle is deemed a total loss, the insurance company will still write out a check for the total amount that is payable. The difference is that the check will be made out to both you and the financial company. Remember, until you have fully paid off your vehicle, it is not truly your vehicle. The financial institution will collect the amount that is still owed on the vehicle, and you will receive the remainder.

It is important that you ask several questions about the procedures involved both when financing or leasing a new vehicle, as well as when dealing with car insurance claims. Clarify how this process works so that you aren’t surprised by the amount of payout you receive. Most car insurance companies will automatically let you know how a lien affects an insurance claim.

Online Cars Insurance Quote

Get a Full Coverage Auto Insurance