What is a letter of no interest?

When you are buying something of substantial value, such as a property or a vehicle, one thing you’ll always want to check is whether the previous owner still owes any money for it. 

When there are outstanding amounts, you want to be sure that there are no effects on your ownership or borrowing and that no lien can be enforced. 

A letter of no interest comes from a secured party (usually a lender of some type, such as a bank) and confirms their security interests do not apply to a specified and identified asset (or assets). 

We’ll explain how these letters can help you to be confident as you move forward with a substantial purchase. 

What is a letter of no interest (AKA, a letter of non-interest)?

To put it in the form of an example, if you buy a vehicle, you might approach the organization that provided any loans for it to a previous owner and ask for a letter of no interest from them.

It’s also important that you cover all eventualities and use things such as a car receipt template so that you have all the pertinent details. 

This protects the new owner from any legal recourse that might have been incurred by the previous one.

There are various reasons why a lender might be prepared to issue a letter of no interest:

  • The original lien is more than 10 years old
  • Any outstanding loan amount is more than the vehicle/property is worth 
  • The lender is now defunct, and the lien has been transferred to another business
  • You are not the original borrower
  • The original records have been lost or misplaced 

Letter of no interest vs. lien release letter: Differences and when each is appropriate

A lien exists to ensure that money lent to buy something is repaid.

If you borrow a sum to buy a property, then the lender will file a lien with the appropriate authorities at the state level.

So if the borrower defaults on the loan, then the lender can foreclose on the property. 

Once the total sum borrowed has been repaid, then the lender will issue a lien release letter so that the borrower has evidence that there is no outstanding amount on the property (or vehicle).

This type of letter is best suited when the original borrower wants some evidence that there is no outstanding amount. 

With a letter of no interest, it applies more to someone who is not the original borrower.

They want to be sure that they will face no legal recourse due to loans taken out by others.

They can approach the original lender and request that they issue them a no interest letter so that they know the property/vehicle belongs to them (though there may be a new lien if they have borrowed from another lender). 

You could think of a no interest letter as being similar to a release of liability agreement in that the issuer is removing all responsibility from the person the letter is issued to. 

Streamline the documents related to your vehicles with PandaDoc

Buying a vehicle can be complicated.

When you spend a significant sum of money, you don’t want anything cropping up later that devalues your purchase or even – in the worst-case scenario – causes you to lose it. 

PandaDoc has a vast array of templates to assist you in any scenario. 

Using templates such as a car purchase agreement can help you ensure you have all bases covered.