Lien Release and Title
When you finance a vehicle, your lender places a lien on it as a first secured party. If you default on payments, the bank has a legal right to repossess a vehicle and sell it to pay off your debt. When a borrower pays off an auto loan, the bank must send him a lien release. If you reside in a state which requires a lender to hold the car title until a loan is paid off, the bank will send you the title within 30 days. You may pick up the lien release in person, or call the bank and request it be mailed to you right away.
A term for an auto loan is usually between 48 and 60 months, and may be as long as 72 months for newer vehicles. When a loan approaches its end, the final payment should pay it off. However, sometimes a borrower may have a balance due when a loan matures. This may happen if he has fallen behind on payments. Banks sometimes run promotions to skip a loan payment during a holiday season. If a borrower takes advantage of such offer, he will have a payment due at the end of the loan. A balance may include late fees and any unpaid interest a borrower has accrued during the term of the loan.
If you owe a balance when your loan matures, you must pay it off to receive your title and lien release. If you don’t pay the owed amount, a creditor may send the account to collections and report it to the credit bureaus. A bank has a right to repossess your car if it cannot collect the amount you owe. If you can’t pay it off in one payment, try to negotiate a repayment schedule with the lender to avoid accruing late fees. Interest will continue to accrue on the balance you owe.
Once the loan matures, your bank will send the information to the credit reporting agencies. Once the loan matures, your credit file will show a closed loan with a zero balance, or a closed loan with an amount you owe. If the bank sends the past-due balance to collections, it may also show a collection record. Collection accounts remain on a credit report for seven years. It may hurt your credit score and prevent you from getting new credit accounts, a job or an apartment rental.