I just paid off my car - should I release my Credit Union's lien on the car?

Question

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?

Answer 1

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.

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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.

Answer 2

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.

Answer 3

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).

Answer 4

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.

Answer 5

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?