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Title Loans Guide

What You Should Know

What Are Title Loans? 

A title loan requires a borrower to be the owner of the title on the vehicle or other asset being used. In this way, the asset is used as collateral for the loan in case the borrower defaults on payment.

Unlike traditional personal loans, title loans have looser credit qualifications and may be readily available to borrowers with a not-so-good credit history. Specifically, they do not require that the applicant’s credit history or credit score be used to determine whether he is qualified for the loan.

How Do Title Loans Work?

Lenders issue car title loans for an amount of money over a short period of time. Borrowers obtain car title loans when they give the title of their vehicle, such as their car, truck, or motorcycle, to the lender as collateral. The borrower generally agrees to pay a fee. Lenders usually give borrowers 30 days to repay the loan.

Once you understand how title loans work, you can begin to apply for one online or at a store. How do car title loans work? It’s very simple. When you arrive at the store or contact the lender online, you show the lender a few documents. These documents generally include an application, title of the vehicle, and a photo ID. Many lenders ask to see images of the vehicle or look it over in person. Some lenders require borrowers to provide them an extra set of keys or make them buy a roadside service plan. Next, if they accept the borrower’s application, lenders ask for the title of the vehicle. Once the borrower agrees and signs the agreement, they must repay the loan.

How Much Can You Borrow with title loans?

The answer depends on a lot of  factors. However, when considering online or in store car title loans, you need to understand that the your ability to pay and the equity of your automobile are the critical  factors that determines how much you can borrow. Your car is the collateral used to secure your loan. For lenders, your car provides security so that they can attempt to be made whole whether you pay it back or not.

Every lender has their own minimum and maximum loan amount when it comes to title loans. They can start as low as $100 and run as high as $50,000. However, it’s more common to see car title loans from $1,000 to $10,000. Lenders that specialize in truck title loans might offer larger amounts.

Pros of Title Loans

Car title loans don't have a complicated or lengthy approval process. Since you are using your car as collateral, car loans are relatively easy to qualify for, even if you have bad credit. In fact, many lenders will provide car title loans without checking your credit score or report. As long as you can show that you have a reliable source of income, and a car worth more than the loan you are requesting, typically the lender will approve your loan application.

Auto title loans are also an excellent option if you need cash fast to pay unexpected bill. As soon as you and the lender agree to the loan amount and terms, you can receive your cash quickly. In many cases, you walk out of the lender's office with the money in hand on the day you apply for the loan.

Finally, because the lender places a lien on the car's title but doesn't keep the vehicle itself, you can continue to use the vehicle while making payments on the loan. You will lose use of the vehicle only if you default on the loan and the lender repossesses your car.

Cons of Title Loans

Depending on where you live and which lender you work with, you could easily pay as much in interest and fees as you would with a payday loan. There are late fees, cash advance fees, loan application fees, finance charges, and all kinds of additional fees to consider.

If you default on your loan, the lender has the right to repossess your car. Because the amount of the loan isn’t worth the full value of the car, the lender can get much more value selling the car than they would if you had paid the loan back in full.

Auto Title Loan Alternatives

  • Get a loan from friends or family: While this isn’t an option for everyone, asking your friends or family for a loan could help you cover an emergency expense without paying sky-high interest rates and fees. If you decide to ask for a loan, sit down with your family or friends and come up with a repayment plan and agreement that outlines the loan terms. Be sure to stick to the loan terms so your relationships aren’t strained down the road.
  • Get a Personal Loan: You may want to try a local credit union or a small community bank for a personal unsecured loan. Some federal credit unions offer payday alternative loans (PALs) of $200 to $1,000 with 1-6 month terms and a maximum APR of 28%. The borrower must be a member of the credit union for at least one month, and there are limits on how frequently a member can take out a PAL. Even though personal loans often have high interest, their APRs and loan terms are still easier to handle than title loans.
  • Credit Card Cash Advances: Although cash advances are notoriously expensive, they still boast interest rates well below triple digits. A borrower with a credit card, a line of credit (LOC), and an ability to repay the loan within several weeks will likely be granted access to such funds, far less expensively.
  • Find local assistance programs: Frequent short-term loan borrowers might qualify for government assistance programs to help cover the cost of basic expenses like food, child care or housing. Find out programs available in your area in our guide to payday loan alternatives.
  • Extra Part-Time Job: If you have the time, consider getting a part-time job. This can help give you a few extra dollars each week to put aside for an emergency fund and to help out with any expenses that you might not have been able to deal with in the past. Even if you need to make money overnight and don't have the time to spend looking for a job at this moment, consider getting another one after this emergency is over and put aside that extra money for the next rainy day.