If I sell a car and the buyer is on a payment plan, do I need to get a dealer's license in order to hold the title as collateral?

If the title is in your name, then yes, you could be liable if the new owner gets into an accident. This could be putting you in a very dangerous position. It is possible for you to have a lien or security interest in the car, or the right to repossess it if payments are not made, without still having the title in your name or holding the attorney. A local lawyer should be able to help you draft up something protecting your security interest in the car while not at the same time leaving you potentially liable for someone else's driving. You should consult with an attorney about the best way to do this.