Liens are a by-product of "contract law". Contract law is the constitutionally protected right of individuals and companies to engage in business through agreements called contracts. Contracts are legally enforceable documents and events; they allow economic activity through agreements.
An auto lien is a document given legal authority by state and federal statute; it confirms a claim that the holder of the lien has upon a specifically identified vehicle.
The "Magna Carta" historically codified contracts, liens, and other basic rules of legal conduct in the year 1297. It was adopted and ratified by King Edward 1st of England and was the basis for English Common Law, or "Common Law". It was foundational in the creation of the constitution of the United States, placed in effect by the United State's founding fathers.
With a basis for the creation of liens, now lets look into what they do and how they function in today's society.
When you or I decide to purchase a car we usually have two ways to go. Either we have the cash to buy the vehicle, or we do not. If you have the cash, buy the car, then the car dealer will give you what is called a "clear title". This means your purchase is not encumbered with a loan, which creates a lien.
If we do not have the funds on hand required to buy the auto, then we must find either a bank, credit union, or finance company that will give the seller the amount of funds required. Especially if we are buying a new car, most of us don't have $20-30,000 cash sitting around in our savings accounts. So we go get a loan.
Now, recognize that a loan is not a lien, and a lien is not a loan, but they are sort of legally intertwined with each other. A loan is simply someone giving you, (your car dealer or individual), money with your promise to repay that money with interest to the entity that loaned it to you. The car dealer, after all the paperwork, then gives you the auto.
The one who loaned you money wants some protection for himself in case something happens that causes you to not be capable, at some point in time, of making those car payments. What is this protection he wants? He wants some kind of legal document that says he has a claim on your car that is higher than your claim to it because you owe money on that car.
What is this document? It is a lien! An auto lien means the one who gave you the loan can legally take your car from you, (called repossession), if you do not pay for it under the terms of the "loan contract" which you agreed to at the time of purchase. Again, a loan is a loan, and a lien is a lien. At CarInsurance.com you can get an easy web quote to keep you and your collateral protected while you are driving and in process of paying it off. If you need additional assistance you can call our helpful agents that will help you get full coverage for the state and the lien holder.
Hypothetically, if you or I borrowed funds from someone to buy a car, but the friend did not require the car as collateral, (no lien), then he could not legally repossess your auto since he never had a lien on the car. The loan he gave you was simply an "unsecured" loan, meaning there was no security, or collateral, or no lien.
While on the subject of liens, be aware there are all kinds of liens, and there are many reasons why property may have a lien on it. For example; real estate, assume a home and lot came into a situation where the home was paid off, no money was owed on it, and a clear title to the property existed.
Each year there was a property tax bill that was due on the home and lot. For reasons unknown, the owner became unable to pay the property tax, so after a period of time the taxing authority had the legal ability to do so, they placed a "tax lien" on the property. In this example, it means that the owner could not legally sell his property without the taxes due being paid, because the taxing authority had a prior claim to the tax money. So, in the house closing documents, a provision for the payment of the taxes would have to be worked out between the buyer and the seller so that a clear title could be issued at time of sale. Otherwise, no sale can occur.
It has been said, in some humor, that if you think you own a property, then try not paying taxes on it.
This is just one of numerous possibilities in the world of liens. Liens can occur for many different reasons, but in a nutshell it just means that someone has a prior claim to your property, whether a car, or something else, until you are able to "clear the lien".
Additionally, if you have borrowed money for a car and the car has a lien on it, you will need comprehensive and collision insurance on your policy with your "loaner" listed as the lien holder.