These States Are 'Car Title-Holding States' - Here's What That Means

As fun as car buying can be, it can also be stressful. Determining if you want to buy a new or used car, finding the right car, and, of course, the paperwork involved in making a vehicle yours can become seriously headache-inducing. One of the most important documents to wrangle in any case is the car's title, which displays a car's legal ownership status and who is responsible for it. In many states, holding onto and keeping track of the title is left to the lender, who holds it until the buyer fully pays off their loan. 

Once the debt is settled, you or whoever's name is on it will receive the title from the lender — at least that's how the process works in 41 of the 50 states, which are considered title-holding states. The bulk of the United States doesn't hand the title over to the owner until the end of the loan, but there are states where the lender doesn't hold onto this document at all. Instead, these states give the title to the signatory of the loan right out of the gate. Those specific non-car title-holding states are Kentucky, Maryland, Michigan, Minnesota, Missouri, Montana, New York, Oklahoma, and Wyoming.

Non title-holding states may seem more buyer-friendly, trusting buyers to hold onto their titles from the beginning. However, their protocol is just as lender-oriented and understandably restrictive as the title-holding states. 

When a lender holds on to a car title, this key document is in one of the most secure places possible. Nothing happens without the lender's express approval. Conversely, lenders may seem to be far more trusting of car buyers in the nine non-title-holding states, but the reality is that these states don't give buyers their car title without some form of protection on their end, should someone find a way to violate the lender's terms. This is done via attaching a lien to the title, which ultimately benefits the lender.

For instance, a lender could still repossess a vehicle with a lien-burdened title should the buyer fail to make their agreed-upon payments over a specific period. The idea is that this allows the lender to make some of its lost money back by selling the repossessed car. Once a car's loan is paid off as agreed, a lien typically doesn't go away on its own, either. The buyer will likely have to obtain a lien release from the lender. The lender will then finalize this change via the Department of Motor Vehicles, after which the buyer will receive a new title.

There's a lot to know when it comes to transferring a car title, but the most basic is knowing who keeps hold of it during the loan term. For most buyers, their title will remain with the lender, but, as established, some states make it the buyer's responsibility.