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We just came upon a windfall significant enough to pay off our car loan - so I did. My Credit Union just sent me a letter describing the way in which I can remove them from the lien. From the letter:

If you wish to remove (credit union) as the lien holder from your vehicle/boat title, send this original lien release, the original certificate of title, a $20 check or money order, and a completed MV-902 to the NYS Dept of Motor Vehicles...

...If you choose not to remove (credit union) as a lien older, it is important that you retain this original lien release...

This being my first car, I wasn't actually prepared to make this decision - so I'd like to know, what are the consequences of removing/not removing the credit union as a lien holder, assuming I want to continue driving my car for awhile and not sell it right away?

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    One potential benefit (unsure on details, so a comment): I believe the lien would prevent a type of identity theft where a loan is taken against the vehicle without your consent. An existing lien on the vehicle would make this more difficult to do. – Michael Richardson Jul 28 at 16:36
  • Would the car be cross-collateral for any other accounts with the credit union? Perhaps removing the lien would eliminate the potential for repossession should things go south in the future? – shawnt00 Jul 29 at 20:36
  • I don't see why you're asking about "removing the credit union as a lien holder" as distinct to "paying off the loan", unless that's what you mean. In the US, making regular payments on a loan (regardless of its size) us. boosts your credit rating, esp. if you're a renter and have no other loan/mortgage, so you might want to consider that. Or you could refi the auto loan down to a lower rate (/shorter term) and part-pay-down the loan, e.g. $5000 @ 4% for 24 mths instead of $20000 @ 8% for 48 mths, and then you essentially get the best of both worlds. It depends on your financial scenario – smci Jul 30 at 14:55
  • @smci My financial situation is I have already paid off the loan because I want to put that money into savings and investments each month instead of sinking it into a loan. I have already done that and received a letter from the Credit Union informing me that their lien on the title of the car should be released. So I am asking if there is any reason not to do this. – Zibbobz Jul 30 at 15:22
  • In my state (MI), you do not need anything other than a release of lien to transfer title to a new owner. I've financed many cars through credit unions and banks and never bothered to get a so-called 'clean' title. If NY is the same, send a copy of the release of lien to your insurance company, clip it to your (formerly encumbered) title and forget about it. – Jim Mack Jul 30 at 18:30
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For practical purposes, you will need/want to remove the lien before you sell the car1, so unless you plan to run the car until it falls apart2, you will need to remove it at some point. The question then becomes: do I remove it now, or wait until later?

I've not been able to find any reason why keeping the lien attached to the car's title would be beneficial: Experian's article What to Do Once You Pay Off Your Car starts:

Get Your Car Title

You just paid off your car and own it outright—now get the paperwork that says so. Your car title is a piece of paper that lists the official owner and any lien holders on your car.

before going on to discuss the differences between title-holding states and non-title-holding states. In either case it continues:

Once you receive either of these documents, follow your state's protocol for transferring the title to your name. This will allow you to show ownership and sell the car in the future, so get all this paperwork in order as soon as possible.

(It also notes that you may get a better rate on your insurance, backing up Kwadzo's answer).

What it does not give is any reason for not removing the lien, or for waiting to remove it, and neither does any other site I've found.

With that in mind, the only half-plausible reason I can think of to not remove the lien straightaway is to "not have to fork out $20" (at least for the time being). However, although I've no experience with any of America's Departments of Motor Vehicles, the experience I do have has taught me that such fees almost never get reduced. If you leave the lien in place "to save $20 today", then by the time you come to sell in a few years time, it may very well cost $24 to remove the lien from the title.


1 According to Credit Karma's article How to sell a car with a lien, it's possible to sell with a lien attached, but is much more hassle.

2 According to Loren Pechtel's comment, you still need "clear title" if you want to junk an old car. This is generally confirmed by a Junk Car Medics article 5 Things to Do Before You Junk Your Car for Cash to an Auto Junk Yard:

2. Get Your Title In Order

You need to return license plates and cancel your insurance. The single most important thing you need in order to transfer ownership of your vehicle to the junkyard is a valid title to the car. You can sell your car without a title but it’s much harder.

While acknowledging it's possible to sell a car without a title (although that mostly seems to be for cases where the title document has been lost), it does also go on to say (after noting that you should "be especially wary of a junkyard that doesn’t care if you have a title in hand"):

The only exception for the need to produce a valid title is if the state where you live in puts a limit on the need for a title if the car is over a certain age. You’ll still need to produce valid picture ID for the transaction to be legal. This exception is usually made because some abandoned cars might have been left for years in remote locations, and the property owners can find no paperwork for them. In any case, it’s smart to inquire with the local department of motor vehicles if you’re not sure of the regulations regarding sales to junkyards and scrap yards.

So there may be situations where not removing the lien isn't a problem, but overall, as noted elsewhere in comments, the OP's best course is probably to hang on to the paperwork until Covid restrictions ease sufficiently for them to print out the necessary forms and pay the $20 to have the lien removed.

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    @user253751 In case you didn't know this, there's a bit of a pandemic going on right now - I haven't been able to get to the office for a few months now. – Zibbobz Jul 28 at 14:09
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    @Zibbobz Really? VPN, print to office printer, ask colleague on-site to pick up the copy and snail-mail it back to you. Unless the office is totally closed obviously. In that case: Print to PDF, email to colleague/family member/friend that has printer and ask them to print it and snail-mail back to you. Or just walk over to a neighbour that has printer. – Tonny Jul 29 at 8:42
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    Or just keep the lien until the office is open again and do it then – Christian Jul 29 at 11:08
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    @Christian That is probably what I will wind up doing - it doesn't sound like there's any danger in waiting, and I know we're supposed to be opening up again partially at the end of August, so I can wait until that time. – Zibbobz Jul 29 at 12:37
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    Even if you drive it until it falls apart you need the title to sell it to the junk yard. – Loren Pechtel Jul 29 at 23:45
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When I paid off the loan, I wanted to get the lender off the title. It streamlines the transfer of title when you are selling the car.

Some answers have said that it can save you money on insurance. I think that is only true if you were keeping specific levels of coverage because the lender required you to have that particular coverage, and you will be lowering or eliminating that part of the policy. But you can do that without having to pay $20 to the state for the new title.

One thing you want to do is to let the insurance company know that the loan has been paid off. This isn't to save money, it is to make sure that the insurance company doesn't notify the lender if the vehicle is damaged.

Normally when you have a loan the insurance company will notify the lender of the claim because the lender has a monetary interest in having you get the repair. It protects their collateral. In some cases the settlement check is made out to the owner and the lender. If they are no longer the lender you will need to get the check reissued.

Sometimes the insurance company will also send proof of insurance to the lender, notifying them that the loan has been paid off will eliminate this notification.

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A co-worker of mine paid off his car, got the lien release and then moved. During the move, he lost his copy of the letter. In the mean time, the place he purchased his car from had gone out of business. Since the paper title had a lien holder on it, and there was no way to verify that the lien was paid off, he could not sell his car and the new state would have mailed the paper title to the defunct car dealership.

While New York state participates in an electronic lien system, based on that letter, your lender does not participate in the program. If they had participated, they could release the lien and the NY state computer system would show that the lien was gone - you would not need to worry about the paper title (or even losing it).

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  • I think this is the most important factor. If you don't release the lien now, you will need the lienholder's consent later to sell the car. If you have lost the letter -- and how sure are you that you can keep track of it for the life of the car? -- you will be up shit creek if the lienholder is bankrupt/unhelpful/has lost their own records in the meantime. – Glenn Willen Jul 28 at 22:39
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    (Or to put it another way: Think of a lien as an "asterisk" on ownership of property. Do you really want your ownership of the car to have a little asterisk on it, for the lifetime of the car, that says "*not full ownership, but subject to approval of [Credit Union]?" And your only defense against that is a letter sitting in a drawer somewhere saying "actually no, we're all good, signed [Credit Union]"? Better to just get the asterisk removed.) – Glenn Willen Jul 28 at 22:44
  • Boils down to how good you are at keeping important papers. Can you find your Social Security card? Birth certificate? Marriage certificate? Deed? If you're the kind of person who considers those trash, then maybe pay the $20 to have the asterisk removed. – Harper - Reinstate Monica Jul 29 at 17:15
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If you were to ever lose the title and lien release or have them accidentally destroyed (fire, flood), then you have both the state and credit union to deal with to get replacements, instead of just the state, unless you had already removed the lien.

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Without knowing the details of NEW YORK lien holder law, it should help reduce your insurance premiums once the car becomes yours with your name on the title. You may also be able to reduce the insurance coverage you currently are obligated to carry on the vehicle by your lien holder. I will say go for it. Why drive around with someone else's name on your property?

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