If you need money quickly to cover a sudden emergency or financial need, an auto title loan could be the way to go.
Title loans are fast, easy to qualify for, and don’t require you to give up your vehicle.
Don’t decide too quickly though. There are significant downsides to taking out a title loan.
Find out what a car title loan is and if it’s a good fit for your needs by reading our guide below.
What Are Auto Title Loans?
A title loan is a type of lending backed up by your car title. Title loans are generally short-term loans with very high interest rates. A common apr for this kind of loan is 300%. Click here to find out what current title loan interest rates are.
Title lenders offer quick cash, generally in small amounts. Most title loans are valued at between $100 and $1000. This type of loan is used mainly for sudden financial emergencies.
To be eligible for a title loan you need to have a clean car title. This means no one else can have a lien on your title. If you have an auto loan on your car it usually won’t be possible to get a loan.
How Do Title Loans Work?
The basics of title loans are right in their name. You go to a title lender and agree to borrow a sum of money at a set interest rate. To secure the loan you surrender your car title as collateral. Just about any kind of vehicle can be used for a title loan. These include:
- Cars
- Trucks
- RV’s
- Motorcycles
If you fail to repay the loan under the agreed-upon terms you authorize the lender to repossess and sell your vehicle. If you can’t repay the total amount of your loan on the agreed upon date most lenders will allow you to ‘rollover’ your balance into a new loan for a fee.
Many lenders require you to surrender a copy of your key to them. Some will also place a GPS tracking device on your car to aid in recovery.
There are two major types of car title loans: installment loans and single payment loans.
Installment Loans
Installment loans are very similar to traditional bank loans. You borrow a sum of money and pay it back, with interest, over a series of payments.
Title installment loans usually come with more fees and other requirements than other types of lending. If you borrow a larger sum of money you’ll probably be offered an installment loan to make repayment easier.
All title lending is short term. It’s very rare to find an installment loan set up over more than a few months.
Single Payment Loans
A single payment loan is repaid in one lump sum. This is the most common type of title loan on the market today.
If you borrow a smaller amount of money most title lenders will want you to choose a single payment loan. You’ll start by having your vehicle’s value assessed and agreeing to the amount.
Once you know what you’re getting you’ll be required to surrender your title to the lender. Then you’ll have to sign an agreement authorizing them to repossess your car if you fail to make your agreed upon payments.
You will also agree to cover the cost of this repossession.
Fees and Rollovers
All title loans involve origination and other fees. You will be required to pay a fee just for the creation of a title loan. Other common fees include GPS services, and the fee for repossession if you default on a loan.
Rollover is a common term in this industry. A rollover happens if you can’t make the full repayment of your loan as agreed upon. Most title lenders will allow you to pay a fee to rollover your loan into a new one.
In many cases, this fee is completely separate from the interest payment on the loan itself. If you don’t watch out you may find that your original loan of a few hundred dollars has ballooned into thousands.
Always remember to get fee schedules in writing before you sign anything.
Pros
If you have a sudden emergency and need cash as fast as possible title loans can be a good option for you. This especially applies if you have bad or no credit. Most title lenders don’t even check your credit score before issuing a loan.
Title loans usually have lower interest rates than similar products such as payday loans and some pawn shops. Some payday lenders charge more than 1000% apr.
They are also available at what would be considered odd hours. Many title lenders operate 24 hours a day. This can be especially helpful if you have an emergency outside regular banking hours.
Title lenders serve an important role in the financial ecosystem. For communities underserved by traditional banks, a title lender may be their best option for a loan.
Cons
There are significant downsides to a title loan. The most prominent is their high interest rates and the potential to lose your vehicle.
Title loans generally have rates of at least 300% apr. This equals out to 25% interest a month. If you borrow $1000 you will owe $1250 in just one months time. As a comparison most high-interest credit cards charge less than 30% apr.
It’s very important to remember that a title lender will absolutely repossess your vehicle if you’re late on a payment. Because you signed a repossession agreement you actually have less recourse than you would for an auto lender repossession.
In some states, lenders aren’t even required to pay you the difference between your balance and the cars sale price. They can sell a $10,000 car to pay for a $500 loan and keep the extra $9,500.
Title lenders know that many people seeking them out don’t have a lot of options. Most lenders are responsible and compassionate people but there have been bad actors in the past.
Think About Your Options Carefully
Auto title loans can be a good option if you have bad credit and need money fast. It’s very important to consider other options and to assess your ability to repay the loan.
Check out some of our useful articles to learn more about other automotive info.