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Car Title Loan

It can be extremely difficult to meet the stringent lending standards of financial institutions and other institutions. You may have a poor credit score or no credit history, so it may seem impossible to get a bank loan.

For people who are in a financial bind and need cash urgently, there are a number of options available. Loans secured by auto titles, in particular, offer a quick and convenient way for people with poor credit to get a loan.

What Is a Title Loan?

A title loan is a secured loan in which a car is used as collateral. A motorbike or pickup can also be used as collateral; it does not have to be a car.

For just a few thousand dollars, you can get a title loan from a lender. At the end of the loan term, usually 30 days, you’ll repay the loan, a fee, and charges. If you default on your loan obligations, the creditor can repossess your vehicle (or the collateral you provided), sell it, and pocket the money.

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Is a Title Loan Right for Me?

Consumer Financial Protection Bureau (CFPB) statistics show that 20% of people who take out car title loans have their cars repossessed when they are unable to repay them.

Almost all of the business of car title loan lenders comes from borrowers who continuously borrow to pay off previous loans. The majority of auto title loans end up becoming long-term obligations, and about four out of five auto loans are refinanced when borrowers cannot pay them off in full.

You should therefore consider other financing options first. Cash advances from credit unions, online loans, credit cards, and borrowing money from relatives and friends are all better alternatives to losing your car.

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You should keep the following things in mind before applying for a title loan:

  • The interest rate on these loans can reach 300%, so make sure to repay them as quickly as you can.
  • Be sure to read the paperwork thoroughly since some creditors will charge you for paying early.
  • Lenders may require weekly or biweekly repayments. Unless they accept direct debit, it could be challenging to manage your payments and bills.
  • If you have trouble keeping track of your payments or the amount you owe your lender, you are entitled to a ‘statement of account.
  • Some lenders might approve your loan if your ongoing loan on your car is about to expire. However, your current lender must approve the loan.
  • Auto title loans may be appealing to people because they can get money quickly. They don’t need a good credit rating either. However, auto title loans have many disadvantages, such as high-interest rates and APRs. Thus, it is important that you make an educated decision and consider other alternatives before settling on this one.

When You Get a Title Loan, What to Expect

The process of obtaining a title loan is relatively straightforward. The following illustrates how to use your car to secure a title loan:

  • Apply online.
  • You must submit your license.
  • You must hand over your car’s title.
  • You should show your vehicle to the lender.

You will receive the funds once the creditor approves your application, and the creditor will keep the title to your vehicle . You’ll repay the loan, the interest, and the fees when it’s due, typically within 30 days, but it can differ from lender to lender.

Consider the scenario where you need to access $2,000. A 25% fee is charged, while the annual percentage rate (APR) is 300%. To figure out what you would owe the lender, you would:

  • Fees are calculated as follows: $2,000 x 25% = $500
  • Calculate the annual interest rate: $2,000 x 300% = $6,000
  • Divide the annual interest by 12 to calculate the monthly interest: $6,000 / 12 = $500 in monthly interest

Fees and interest would total $1000 for a total of $3,000 – or 50% of the loan. Typically, a bank might charge you 10% APR for a $1,000 loan.

Upon paying off that loan over one year, you will pay about $1,055, plus any fees. In comparison, a title loan might cost $1000 to borrow $2,000, but a personal loan would only cost you $110.

You can extend your title loan term for 30 more days if you cannot repay the loan at the end of its term. It is likely that you will have to pay additional fees, which will prolong the high-interest rate.

In the event that you cannot pay, you may lose your car. Even if you still owe money on your car, they can sell it and pocket the cash.

Repossession can make it challenging to travel but also to replace the vehicle that the lender took. Losing your car will further damage your credit, making it impossible to qualify for a new car.

Insurance and Title Loans

If you have a title loan on your vehicle, it cannot be sold or traded. You must insure the vehicle with full coverage until the loan is paid off. This is to protect the lender.

While the loan is outstanding, the car is technically the creditors. An accident-damaged vehicle has no worth as collateral. Until the loan is repaid, the loan provider requires that the vehicle be insured.

It pertains to new auto lenders as well. If you pay your car loan timely, you must insure it fully. In addition, should your car be seized by your creditor, your lender can file a claim to repair any damage.

Title Loans: How Much Can You Borrow?

The amount of money you can borrow depends on how much your car is worth. Auto title loans allow borrowers to access up to 50% of the car’s market value. Typically, loans range from $100 to $5,000, with some providers offering up to $10,000.

Title loans are generally repaid between 15 and 30 days. In the event you fail to repay the loan, your car may be seized. Consider all your alternatives before signing the contract.

To pay off your debt quickly, a better option would be to get a personal loan from a financial institution. Personal loans usually have lengthy repayment periods and lower interest rates.

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Pros and Cons of Vehicle Title Loans

If you need cash, you might consider taking out a loan and pledging your vehicle as security. Even though it appears to be an easy way to get some money, title loans have disadvantages. To better grasp auto title loans, let’s look at the pros and cons.

Pros of Title Loans

Quick money

You can get money very fast with an auto title loan. Generally, it takes just a few minutes to apply, and you receive your funds much faster than traditional loans. Typically, the loan amount is considerably lower than the car’s value, which helps the lender if you cannot repay the debt.

Less Credit Checks

A vehicle title loan is popular since it is quick to get. Before approving a loan, lenders assess a borrower’s financial stability. Most creditors do not check credit history.

You Get to Keep Your Car

Although your car is being used as a security for a loan, you can still use it. As long as you make your payments, the car is yours.

Cons of Title Loans

High-Interest Rates

Since people with poor credit are accepted, car title loans have sky-high interest rates. Paying off these loans can be a nightmare for people with poor credit.

It is not uncommon for auto title loans to have triple-digit interest rates and even 400%. Even if you borrow $400 at 400% interest, you will pay $1,600 in interest.

Possibility of Repossession

If you are unable to pay back your loan, especially if interest is compounding, your vehicle may be repossessed. You put up your vehicle as security in case you default on the loan. Should you default, your vehicle may be taken away.

Excessive Fees

You should be aware of high loan fees. These fees are usually spelled out in the fine print. You may have to pay repossession fees, insurance, and other costs. Make sure you read the fine print before taking out a car title loan.

If You Can’t Repay a Vehicle Title Loan on Time, What Happens?

It’s possible to stop repaying a title loan, but you shouldn’t. Your credit score will be damaged if you default on a car title loan. This will leave you without a car and a bad credit rating.

Alternatively, you could return the vehicle to the lender, and your credit score would be affected as well. It’s a shame you lost your car, but at least it wasn’t repossessed.

Filing for Bankruptcy

The bankruptcy process can provide relief from car loans and past-due bills. However, it is rarely the best solution. Unless you have a lot of debt – more than you could get from a vehicle title loan alone.

After filing bankruptcy, your credit rating and loan eligibility will be severely impacted. In some cases, bankruptcy does not release you from the loan, and you may still lose your car. If you are considering bankruptcy, consult an attorney

Considerations Before Getting a Title Loan

You should know some things before applying for a auto title loan.

Loan Value

Your car will be appraised by the lender and determine its “value”. Usually, you can borrow 25 to 50% of the worth of your car. If the car is already financed, its value might be reduced. In some cases, insurance may be required.

Interest Rates

A typical car title loan has an APR of 300%. If you borrow for one year, you’ll pay three times as much in interest and fees.

Even though these loans generally last for only one month, most borrowers cannot afford to pay them back within one month. Instead, they roll it over to the next month. Usually, the borrowers are subject to fees and interest in addition to what they already owe.


In the event that you fail to pay your loan back in full, you will have to surrender your car to the lending agency. Lenders can tow your car if you default on your loan, or unlock it and drive off with it. In the event that you provided them with a spare set of keys during the loan process, this would be the case.

Credit Score

There is no connection between your credit score and whether you get a title loan. Lenders don’t care about your credit score since your car is collateral.

In the event that you fall behind on your loan, they will just sell your car at the highest price. Because they appraise your car at 50% of its market value, they will make money.

Title loans are one of the easiest, fastest ways to get money, so it’s tempting to use your vehicle to get out of a bind. It may take a few days, or even minutes, for a car loan to be approved.

Prior to taking out a vehicle title loan, be sure you can repay it within a reasonable timeframe or you may lose your vehicle or end up in debt due to penalties and fees alone.

Create a budget

Budgets help you stay on top of your finances. They help you track what you earn, spend and put away. Budgeting will help you prevent incurring additional debt by putting money into savings every month.

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Getting Out of a Title Loan

When you take out a title loan, several methods exist for repaying the loan and regaining ownership. Consider these possibilities:

Getting Your Balance Paid Off Early

If you have the cash, pay the entire amount as soon as possible. Working a part-time job, taking on extra work, or borrowing money can help you save money and regain car ownership.

Discuss Your Loan Terms With Your Lender

It’s not a given that lenders will compromise, but it never hurts to ask. Negotiate and get a written agreement if you need lower payments or a lower APR.


Your balance may be paid off with a refinance loan. If your credit has improved since your last title loan, you can apply for a new loan with lower interest rates, charges, and no collateral.

Debt Management May Be Helpful

If you are in debt, a nonprofit organization can work with your lenders and help you find a solution that works for you. Managing your debt is different from settling it. Settlement of debt can significantly damage your credit score.

Local Title Loan Rules

The federal government does not regulate vehicle  title loans. Every province and territory has its regulations and requirements.

For instance, title loan lenders in certain provinces and territories must be licensed or be registered to operate. For complaints or information on rules and regulations regarding title loans, visit your state or territorial consumer affairs office.

Alternatives to Title Loans

With poor credit, title loans may seem attractive since they don’t require a credit check. However, you have other options as well. Here are a few:

A Credit Card Cash Advance

Cash advances on credit cards have their own fees and APRs, but they are usually more favorable than vehicle title loans.

Your credit limit limits you, and any money borrowed will be charged to your credit card. Generally, there is no grace period; interest begins accruing when the loan is granted.

A Personal Loan

A personal loan is an unsecured loan based solely on your credit score. If you aren’t eligible to borrow independently, ask a co-signer with good credit for assistance.

Home Equity Loans or Lines of Credit

A home equity loan or a home equity line of credit may be available to you if you own a home. HELOCs are lines of credit that can be drawn upon as needed.

Both have much lower interest rates than payday loans, cash advances from credit cards, and title loans. In addition, your loan terms are much longer than those of other borrowers, ranging between 10 and 30 years. Your loan is secured, however. If you don’t repay your loan, you could lose your home.

Someone Close to You

See if a friend or family member can lend you a short-term loan. You’re likely to get better loan terms and less likely to lose your car if you can’t pay it back.

How Do Title Loans Affect Your Credit?

You may not see a change in your credit score due to title loans, since lenders rarely pull your credit report or report your payments. In other words, paying off your vehicle title loan balance on time will not build your credit or boost your credit score.

Defaulting on the loan can still have severe consequences. Regardless of whether it’s reflected in your credit report, you’ll probably have to pay late fees, and your vehicle could be impounded.

If you have fallen behind on your payments, you may be offered to “roll your debt over,” however you will have to pay more money and interest, making it increasingly difficult to repay your debt.

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Beware of Predatory Lenders

When you have bad credit, title loans might be your only option for cash. Even if you’re in a bind, you should consider all your options before putting your vehicle at risk.

A traditional loan is still an option even if you have bad credit. As more alternative financial institutions emerge, your choices are increasing.

You can also consider online lenders and peer-to-peer lending sites, which are more accepting of people with bad credit and offer several benefits over car title loans.

Credit data could be used by lenders to determine your creditworthiness rather than relying primarily on your credit history, credit score, and salary, allowing lenders to offer better terms or lower interest rates.

Rather than taking out future high-interest loans, improve your credit now. You can monitor your credit report for free by paying your bills on time and minimizing your credit card debt.

Regularly reviewing your credit report and score will allow you to see where you can improve and begin to build your credit.

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FAQs about Title Loans

What are the differences between car loans and title loans?

Car title loans and auto loans sound alike, but they are not the same. When you get an auto loan, you buy a car. Essentially, car loans are short-term, high-interest loans secured by your vehicle's title. You can't use it to purchase a car and might lose your vehicle.

Which type of title loan is most common?

A car title loan is commonly used, in which the vehicle is used as security. Most people who take out title loans are in financial difficulty or need quick cash.

Is it possible to get a title for a car not paid off?

To qualify for a title loan using an unpaid car, the car must be worth enough, and you need a steady income. Loans secured by title are known to have lenient qualifications, which is why many cars can be used as collateral.

What can I do to protect myself against predatory lending?

  • Obtain quotes from several lenders.
  • Stay away from loans with balloon payments.
  • Before signing, make sure you know everything about the loan.
  • Think it over for a couple of days before signing.
  • Don't be pressured into taking out a loan you didn't ask for.

Is it possible to build credit by paying off a title loan?

Is paying off a title loan good for my credit? Simply put, no: The lender does not report loan payments to the bureaus, so paying back the loan does not build credit. In the event that you fail to pay, your lender will not send you to a collections agency, which will damage your credit - they can simply seize your vehicle.

How much can I get for a title loan?

Usually, you can secure 25% to 50% of the car's value. Typical loans range from $100 to $5,500, but some will lend you up to $10,000 if you qualify. After you get your loan approved, you will turn over the title to your vehicle.

If I make partial payments, can my car be repossessed?

If you pay less than you owe, they can repossess your car. Partially paying may extend the time before the tow truck arrives, but you can't keep your vehicle if you don't pay the balance.

Do I need a bank account for a car title loan?

To receive your funds, a bank account is not required; nor is it necessary to repay your loan. If you do not have a bank account or would prefer not to divulge your account information, you can choose from various other payment methods.

How do I get a vehicle title loan?

  • Title showing sole ownership of the vehicle.
  • Valid government identification that matches the name on the title.
  • A bank statement or other proof of residence matches the title's name.
  • The vehicle's registration.
  • Evidence of insurance.
  • Documents showing you can repay the loan.

What is the process of getting a car title loan?

The following information provides a quick overview of how car title loans work:

  • In Canada, title loans are secured loans secured by the title of the vehicle
  • Terms range from 1 month to 3 years
  • The interest rates on these loans can reach as high as 70% (APR).
  • The loan amount is calculated based on the resale value of your car (50% of the market price is typically available).
  • Your vehicle cannot have any unpaid liens or debts.
  • When a loan agreement is reached, a lien is put on your car and it remains on it until the loan has been repaid in full.

What is a lien?

Liens are security interests placed on vehicles. A secured loan agreement uses the vehicle as security. If you fail to repay the loan, the lender can repossess your vehicle.

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