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How liens and lienholders affect independent auto dealers

Selling a vehicle with a lien or lienholder

It seems pretty simple—you purchase a vehicle, you pay the person you purchased it from. But when liens and lienholders come into play, things can get a little more complicated.

Whether it’s from a private individual or direct from another dealer, purchasing a vehicle with a lien will be a little more complex. But it’s not impossible—and with the support of your floorplan company, it could be even easier. Let’s talk about how liens affect independent dealers, and how to make the lien payoff process a little easier.

>> New to the world of dealer floorplan financing? Here are some terms you should know.

What is a lien?*

As with anything in the field of finance, there are many ways to define a lien. Investopedia defines a lien as “a claim or legal right against assets that are typically used as collateral to satisfy a debt.” In the context of vehicles being sold, a lien is generally created when that vehicle is financed.

What is a lienholder?*

J.D. Power defines a lienholder as “an entity that is the legal owner of your property/belonging until you pay off the loan.” Typically this will be a financial institution of some kind, whether it’s a bank or a strictly automotive lender.

How can liens affect automotive dealers?

Most often, a lien comes into play in a non-auction purchase. As quick refresher, non-auction purchases are vehicles purchased from non-traditional sources. When it comes to car trades or purchases from private individuals, a dealer might be purchasing a vehicle that hasn’t been fully paid off by the previous owner. That means in order to take legal possession of the vehicle, the lienholder must be paid the remaining debt amount on the lien.

How can floorplanning help?

The process of paying off a lien can get complicated with a lot of moving parts. Often it requires a lot of back and forth between the lienholder, the purchasing dealer, and occassionally third parties. This ties up time and cash alike for a dealer—both valuable resources that are better invested elsewhere.

This is where your floorplan company may come in. In some cases, automotive lenders are doing more than just offering loans. If you’re working with a floorplan company that offers back office services, they may be able to help navigate the lienholder payoff process. For example, at AFC we offer lien pay services that include verifying payoff, assisting in remitting funds, and following up on titles.

Make the lienholder payoff process a smooth one

Dealing with a lien on a vehicle you really want doesn’t have to be a pain. With knowledge, preparation, and a little help from the right floorplan provider, lienholder payoffs can become a lot easier.

*Definitions may vary depending on the floorplan company. These term definitions are not specific to AFC’s contracts, but only general references. 

Disclaimer: Descriptions of AFC floorplans are for illustrative purposes only. Terms of AFC floorplan financing are subject to a final written agreement acceptable with AFC. AFC does not guarantee any results for floorplan financing and examples are for illustrative purposes only. Dealers should consult their own advisors to make independent business decisions regarding floorplan financing. AFC is not affiliated with any of the companies mentioned in this article.