Seller Financing a Vehicle in Michigan: Promissory Note, Usury Laws & UCC Guide
Owner financing (also called installment sale or seller carry-back) lets a private seller act as the bank. This guide covers every document you need, Michigan's usury rate cap, how to perfect your security interest, and what to do if the buyer defaults.
What Is Seller Financing for a Vehicle?
In a seller-financed vehicle sale, the buyer pays a down payment at closing and then makes regular installment payments directly to you — the seller — over an agreed period. No bank or credit union is involved. You carry the note.
This arrangement appeals to buyers who cannot qualify for conventional auto loans and to sellers who want to move a vehicle quickly or earn interest income on the unpaid balance. The risk is yours: if the buyer stops paying, you must enforce the note and, if necessary, repossess the vehicle.
Required Documents in Michigan
Records the ownership transfer and purchase price. Required in most states to register the vehicle.
The formal IOU. States the loan amount, interest rate, payment schedule, and consequences of default.
Gives you a lien on the vehicle. The buyer cannot sell the car free and clear until the note is paid off.
Filed with Michigan Department of State to make your lien public record and protect you against third-party claims. $15 filing fee (UCC-1 with Michigan Department of State).
Michigan Seller Financing Rules at a Glance
| Rule | Michigan Detail |
|---|---|
| Maximum interest rate | No explicit consumer usury cap; courts apply reasonableness standard |
| Title retention allowed | Yes |
| UCC-1 lien filing | Required — $15 filing fee (UCC-1 with Michigan Department of State) |
| Repossession process | Self-help under UCC Article 9 (no court order required absent breach of peace) |
| Filing agency | Michigan Department of State |
Michigan note: Michigan uses an electronic title system. When you note a lien, you will not receive a physical title until the lien is released. Plan accordingly if the buyer needs a title copy for registration.
How to Sell a Vehicle on Installment in Michigan
- 1
Agree on the sale price and down payment
Set a purchase price, down payment (ideally 10–20%), and confirm the buyer can maintain insurance on the vehicle throughout the loan term in Michigan.
- 2
Draft a promissory note
The promissory note must state the principal amount, annual interest rate, payment schedule (monthly amount and due dates), total number of payments, and consequences of default. In Michigan, keep the rate at or below No explicit consumer usury cap; courts apply reasonableness standard.
- 3
Execute a security agreement
A security agreement (separate from the promissory note) creates the seller's lien on the vehicle. It should identify the vehicle by VIN, describe the collateral, and spell out the seller's repossession rights on default.
- 4
Handle the title in Michigan
Michigan allows the seller to retain the certificate of title as collateral, or you can transfer the title to the buyer with a lien noted. Recording the lien with Michigan Department of State creates public notice of your security interest.
- 5
File a UCC-1 financing statement (required)
File a UCC-1 with the Michigan Department of State to perfect your security interest. $15 filing fee (UCC-1 with Michigan Department of State). This filing gives you priority over other creditors and is the legal backbone of your seller-financing arrangement.
- 6
Collect and track payments
Issue written receipts for every payment. Keep a running ledger showing the outstanding balance, interest accrued, and remaining payments. Email receipts create a time-stamped paper trail if a dispute arises.
- 7
Release the lien on payoff
Once the buyer makes the final payment, immediately file a UCC-3 termination statement and release the lien on the title. Delays can expose you to liability in Michigan for failure to release a satisfied lien.
Usury Laws in Michigan
Michigan repealed its usury laws in 1985. Private vehicle financing has no hard rate ceiling, but Michigan courts may void terms they deem unconscionable under the Michigan Consumer Protection Act for transactions with consumers.
Title Handling in Michigan
Michigan allows lien notation through the Michigan Secretary of State. The title is held by the SOS electronically until the lien is released. The buyer receives a paper title with the lien noted.
Regardless of how the title is handled, file a UCC-1 financing statement with the Michigan Department of State immediately after the sale. This creates a public record of your security interest and protects you if the buyer attempts to sell the vehicle, files for bankruptcy, or has other creditors.
Default and Repossession in Michigan
Default occurs when the buyer misses a payment, fails to maintain insurance, or violates another material term of the installment agreement. Your security agreement should define what constitutes default and what notice (if any) you must give before exercising remedies.
Michigan permits self-help repossession under UCC Article 9. Courts have held that objection by the debtor at the time of repossession constitutes a breach of peace requiring the seller to cease and obtain a court order.
Risks of Seller Financing
Buyer defaults
Require a meaningful down payment (10–20%), verify income and references, and file a UCC-1 lien immediately.
Vehicle damage reduces collateral value
Require the buyer to maintain full-coverage insurance naming you as lienholder throughout the loan term.
Interest cap violation
Stay below No explicit consumer usury cap; courts apply reasonableness standard and document the agreed rate in writing on the promissory note.
Buyer files for bankruptcy
A perfected UCC-1 lien gives you secured-creditor status, which is significantly better than unsecured creditor in bankruptcy proceedings.
Buyer sells the vehicle to a third party
A UCC-1 filing and/or lien notation on the title puts third-party buyers on constructive notice of your interest.
Seller Financing FAQ — Michigan
What documents do I need to sell a car on installment in Michigan?
You need a bill of sale (for the initial ownership transfer), a promissory note (the financing instrument), and a security agreement (creating your lien on the vehicle). In Michigan, you should also file a UCC-1 financing statement to perfect your security interest.
What is the maximum interest rate I can charge for seller financing in Michigan?
No explicit consumer usury cap; courts apply reasonableness standard. Michigan repealed its usury laws in 1985. Private vehicle financing has no hard rate ceiling, but Michigan courts may void terms they deem unconscionable under the Michigan Consumer Protection Act for transactions with consumers.
Can I keep the car title until the buyer pays off the note in Michigan?
Yes. Michigan permits title retention as a form of collateral. Michigan allows lien notation through the Michigan Secretary of State. The title is held by the SOS electronically until the lien is released. The buyer receives a paper title with the lien noted.
What happens if the buyer stops making payments?
Michigan permits self-help repossession under UCC Article 9. Courts have held that objection by the debtor at the time of repossession constitutes a breach of peace requiring the seller to cease and obtain a court order. Always consult an attorney before repossessing to ensure you comply with Michigan notice requirements and UCC Article 9 procedures.
Do I need to register as a dealer to offer seller financing in Michigan?
Private individuals who occasionally sell vehicles and offer financing are generally not required to obtain a dealer license in Michigan. However, if you regularly engage in the business of selling and financing vehicles, dealer and sales finance company licensing may apply. One-off transactions between private parties are typically exempt.
What is a UCC-1 financing statement and why does it matter?
A UCC-1 financing statement is a public notice filed with the state government that tells the world you have a security interest in the vehicle. Without it, a buyer who fraudulently sells the car to a third party could leave you with no recourse against the new owner. Filing perfects your lien and gives you priority over most other creditors.
Generate Your Michigan Vehicle Bill of Sale
Start with a legally sound bill of sale, then attach your promissory note and security agreement.
Create Bill of Sale