How do I hold title when I make a car loan to a friend?
I am lending money to someone to buy a car. I just created the promissory note, and I want to make sure I am going to hold title to the car until the car is paid off. Also, I want to make sure that I am named on the insurance policy for loss until the car is paid off and that the car stays insured.
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You need a separate document, or a distinct section within your promissory note, that functions as a security agreement. This is where you explicitly state that the vehicle is collateral for the loan, and insurance is required.
To do this legally, the security agreement should also state that the borrower agrees to take all necessary steps to perfect this security interest, which means you will be listed as a lienholder on the vehicle’s title. This is the most important part that legally protects you.
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I am lending money to someone to buy a car. I just created the promissory note, and I want to make sure I am going to hold title to the car until the car is paid off. Also, I want to make sure that I am named on the insurance policy for loss until the car is paid off and that the car stays insured.
I understand the importance of protecting your interests in this transaction. Have you included specific clauses in the promissory note regarding the title and insurance requirements?
No, I need help to do this.
Are you looking for legal advice on how to enforce these provisions in case of default or non-compliance by the borrower?
I want to add the insurance and secure the note with the vehicle’s title.
Is there anything else the Lawyer should know before I connect you? Rest assured they’ll be able to help with your title and insurance concerns.
No.
Hi, and thank you for using AskaLawyer. My name is AttyZ, and I am reviewing your question now. I'll provide relevant information or ask for details shortly.
So sorry you’re having trouble with this.
What state do you have the vehicle registered?
Washington State.
Ok, great. Do you have the title to the vehicle? Or is there still another loan on it?
I am helping an employee by lending them money to buy a car. I want to have a non-possessory lien on the vehicle’s title and make sure I am named on insurance.
I understand.
I need to add these clauses to my promissory note.
Is there a current loan on the vehicle, or do you own it free and clear?
You will need a Promissory Note and Security Agreement.
To officially “perfect” your security interest and make it a matter of public record, you will need to be listed as a lienholder on the car’s title.
Ok, great. I just completed the promissory note. I need the security interest. Where do I specify insurance requirements?
You need a separate document, or a distinct section within your promissory note, that functions as a security agreement. This is where you explicitly state that the vehicle is collateral for the loan, and insurance is required.
To do this legally, the security agreement should also state that the borrower agrees to take all necessary steps to perfect this security interest, which means you will be listed as a lienholder on the vehicle’s title. This is the most important part that legally protects you.
Ok, where do I find the security interest document?
Does eForms have this template?
I am not sure if eForms has one.
You may need to craft your own section or find a template for something that is close.
Insurance requirements are typically detailed in the security agreement or a separate section of the loan documents. The promissory note itself is usually just about the debt, but the security agreement is about protecting the collateral.
The agreement should require the borrower to provide you with proof of this insurance policy and to notify you immediately if the policy is changed, lapses, or is cancelled.
Include a provision that gives you the right to purchase insurance on the car if the borrower fails to maintain the required coverage, and to add the cost of that insurance to the outstanding loan balance.
Think of it this way: the promissory note is the “I owe you,” and it’s what you’ve already done. The security interest is the “if you don’t pay, I get the car,” which is established in a separate security agreement.
Insurance requirements are a key part of protecting that security interest and are typically included in that same agreement.
To finalize your protection, you need to follow the proper steps with your state’s Department of Motor Vehicles to have your lien recorded on the vehicle’s title.
Let me know if you have further questions on this.
AttyZ
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