A lien on a vehicle is a legal claim to the vehicle by a third party, known as a lienholder, who has a financial interest in the vehicle. When a vehicle is financed, a lien is created, which is the lenders legal right to possession of the vehicle until the debt is repaid. The lienholder can repossess the vehicle if the borrower defaults on the contract, such as failing to make payments. A lienholder can be a private individual, a bank, a lending company, or a car dealership.

In most cases, auto lenders will file for a lien with the state agency or department for motor vehicles and will be recorded as the lienholder on the vehicle title. When the financing is paid off, the lien is released, and the lienholder signs the title and sends it directly to the borrower. The borrower then contacts their states vehicle agency to have the lien removed from the vehicle record.

It is important to note that a lien on a vehicle is impermanent and can be removed only after the borrower repays their loan.