Holding title to any asset is legal proof that you’re its owner. You own your car outright when the title, sometimes referred to as a certificate of title, is in your name. The document's exact format and requirements aren’t the same in all states, but one rule is universal. You don’t yet legally own your car and you don’t hold absolute title to it if you financed the purchase and you haven’t yet paid off the loan.
What Is a Car Title?
Your vehicle title originates with and is monitored by your state – or, more precisely, its Department of Motor Vehicles. It stays with it throughout the life of the car, a permanent record. Some of the same title information will appear in most states: the identity of the owner and their address, previous owners and their addresses, dates of purchase, the license plate number when it's issued and information about the car, such as its VIN, make, model, age and mileage at the time of transfers. Any damage that’s occurred to it will be noted, and even its weight is recorded in some states.
Car Title Terms
A few terms are commonly associated with all this information, and some are erroneously used interchangeably. A “clean” title is one that doesn’t indicate that the car has ever suffered any damage. Damage reports are commonly referred to as “brands.” They don’t necessarily have to be the result of a vehicular accident. They can indicate that the vehicle was involved in some severe weather condition, or even that there was a dispute about its mileage at some point.
A “clear” title doesn’t have any liens against it and shows a chain of ownership. A lien can be placed by the lender that’s financed the car, or even a mechanic who did some work on it and wasn’t paid so they went to court, got a judgment and placed it against the motor vehicle’s ownership. It can’t be sold without the mechanic receiving payment from the proceeds. All liens are typically noted on the title even after they’ve been satisfied. The fact that they’re no longer outstanding is noted.
A “salvage” title means that the car was totally wrecked at some point. A “reconstructed” or “rebuilt” title is one that’s attached to a vehicle that was wrecked but was subsequently repaired sufficiently that it’s safely drivable.
A title is said to have been “washed” when one or more of the car’s owners have managed to have brands removed, usually illegally. For example, the owner might move to another state and register the title there, conveniently forgetting about any damage it previously suffered.
Who Has the Title?
The lienholder’s identity and contact information will appear on the title if there's an outstanding loan against it. The lender is considered the legal owner of the car in most states, and will receive and hold the title in its possession until the loan is paid off. You can’t sell the car and transfer the title to a new owner without paying off the lien first. Your state's DMV won't allow it.
Read More: What Are the Benefits of an Auto Loan?
When Your Loan Is Paid Off
The process of transferring title into your name when you’ve paid off any liens against it can vary by state and by lender. In many cases, the lender will simply mail it to you when the debt is satisfied, or the lender might simply contact your state’s DMV to let them know that you’re now the legal owner because you’ve paid off the attached debt. You can get the updated title from the DMV. Some states will simply mail it to you after they receive word from the lienholder.
It might take as long as a month for you to receive it, depending on the procedure.
When You’re Buying a Used Car
Needless to say, you want a vehicle with a clean and clear title when you buy a used car. The dealership will take care of this for you if you buy through them, but you’re otherwise on your own and will have to do some homework.
Ask to see the title if you’re buying from a private party. Make note of the VIN number, then get a car history report to make sure nothing has happened to the vehicle that doesn’t appear on the title and that there are no unrecorded liens against it. CarMax indicates that damaging incidents are commonly omitted. You can get the vehicle’s history report online from the National Motor Vehicle Title Information System for a fee.
You’ll want to check that the VIN is accurate, too. Compare the number on the title to what actually appears on the vehicle. You can usually find the VIN on the lower left side of the car’s front window. Make sure the odometer reading on the title reasonably lines up with that on the car as well. It won’t match exactly, but it should be in the same ballpark. Something is probably wrong if the title reports 50,000 miles and the car’s odometer shows 150,000, and it’s only a couple of years old.
Read More: How to Negotiate for a Used Car With a Private Party
What to Do With Your Title
Regardless of whether you pay cash and buy a new vehicle from a dealership, buy a used car from a dealership or private party or simply pay off your auto loan, you’ll have to legally take care of titling it in your name after the transaction. Don’t neglect to register the title with your state because it’s your proof of ownership. Some DMVs will require additional documentation before transferring the title to you, such as a bill of sale.
Keep it in a safe place, but all isn’t lost if you happen to misplace it or it’s destroyed. You can ask your state for a duplicate, but you’ll have to provide some necessary information, such as the VIN and other details about the car.
You most likely won't have to provide the title to register the car and get license plates for it, or to insure the vehicle.
When You Sell the Car
You can sell your car without much fuss after it’s paid off and there are no liens against it. There’s typically an area on the back of the title where you can record the details of the sale and sign it over to the new owner. You'll have to fill in names and addresses for both yourself and the buyer, as well as the date, its current mileage and how much you’re selling it for. You’ll have to sign it, and the buyer must sign it as well to confirm the transaction. Make a copy before you hand it over to the buyer and keep it in a safe place so you can prove the transaction in the event that it's subsequently involved in an accident or crime. It will prevent you from being held liable.
Of course, the dealership will take care of all this for you if you trade your vehicle in for a new one.
Read More: Checklist for Selling a Car
- Car and Driver: What Is a Car Title? Everything You Need to Know
- J.D. Power: How to Sign Over a Car Title
- Car and Driver: When Financing a Car, Who Has the Title?
- Bankrate: How to Obtain Your Car Title After Loan Payoff
- Navy Federal Credit Union: Titles and Registration
- National Motor Vehicle Title Information System: Consumers Don’t Be Fooled. Protect Yourself
- Dealertrack. "Electronic Lean & Title." Accessed Sept. 8, 2020.
- Direct Auto Insurance. "Car Titles." Accessed Sept. 8, 2020.
Beverly Bird has been writing professionally for over 30 years. She is also a paralegal, specializing in areas of personal finance, bankruptcy and estate law. She writes as the tax expert for The Balance.