The title loan process
A title loan is a secured, short-term loan that uses your motor vehicle as collateral, which means the lender can take the car if you don’t repay the loan. To get a title loan, you usually must own your vehicle outright. You can often borrow up to 25% to 50% of your car’s value. Loan amounts are often around $700 to $1,000 but could be as much as $10,000 or more.
To apply for a vehicle title loan, you simply need to visit a lending office or online lender and present your vehicle’s title. Some lenders offer loans in as little as 30 minutes. Not only can you get the money fast, but you’ll usually need to repay the entire loan quickly in 15 to 30 days.
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Title loan rates and fees
On average, you can expect to pay a fixed 25% fee to get a title loan, equivalent to an APR of 300% or more. To add context to this APR, recent data from the Federal Reserve showed the average interest rate is 20.92% on interest-bearing credit cards and 11.48% on 24-month personal loans.
Let’s say you took out a title loan of $1,000 with a 25% fee and a 30-day repayment term. When the loan comes due in 30 days, you must pay $1,250. This total includes the original $1,000 plus a fee of $250 ($1,000 times 25%).
If you can’t repay the loan in full, you may be able to extend it for another 30 days by paying another $250 fee (25%). Assuming you pay the loan off in the next 30 days, you would have paid $500 in total fees.
Research suggests it takes more than 50% of borrowers at least four consecutive title loans to fully repay the original balance. Using our same example ($1,000 loan, 25% fee, 30-day term), you would pay total fees of $1,000 if it took you four 30-day periods to repay the loan ($1,000 x 25% = $250 x 4 = $1,000), in addition to the original $1,000 loan balance.
Where to get a title loan
You can’t get a title loan from a bank or credit union, but will need to work with a company specializing in vehicle title loans. These companies often have storefronts, and there are even some online title lenders. However, before you get a title loan, it’s important to ensure you’re using a reputable lender with relatively reasonable terms, rates and fees.
As you’re evaluating lenders, it can be helpful to read customer reviews to see what real people think about them. You can also perform an online search for recent complaints or legal actions against the company by the government. You should know many consumer protection laws are there to protect you from predatory lending.
Keep in mind, if you believe a title loan lender or other financial provider has treated you unfairly or dishonestly, you can file a complaint with government entities like the Federal Trade Commission (FTC), the Consumer Financial Protection Bureau (CFPB) or your state’s attorney general.
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Title loan requirements
You need to own a car or motorcycle that can be used as collateral to get a title loan. In most cases, your vehicle can’t have an existing lien. Requirements may vary slightly between lenders, but you will typically need the following to obtain a payday loan.
Title loan requirements:
- Loan application
- Lien-free automobile title
- Government-issued photo ID
- Photos of vehicle or vehicle itself
- Proof of income
- Proof of residency
- Proof of insurance
- A list of references
Most title loan lenders don’t require a minimum credit score to get a loan, though some require further documentation about the car’s history. Additionally, depending on the laws in your state, you may need to provide proof of income before getting a loan. Proof of income can be a recent pay stub from an employer, proof of self-employment or proof of government assistance.
Many companies offer services to help customers determine the size and type of title loan that would work best and what materials are needed to apply.
When getting a title loan, you can keep possession of your car as you repay it. However, many lenders will require customers to provide a duplicate car key and will install a remote shut-off system or GPS tracker.
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How to apply for a title loan
Once you have all your required documents and items ready, the title loan application process is relatively simple. To apply for a title loan:
- Bring your vehicle to the title loan company for assessment.
- Fill out an application, which includes personal information and your income source.
- Review the offer the title loan company gives you based on your application and your vehicle’s value.
- Walk away with your vehicle and cash (the lender keeps your title).
- Pay your loan back within the loan’s timeframe to avoid paying excessive interest or having your car turned off and taken.
Paying back a title loan
When you get a title loan, you’ll need to repay the full loan amount in one payment. This payment is typically due 15 to 30 days after you get the loan. Since you offered your car as collateral for the loan, your lender can take the car to repay your loan if you fail to do so.
Todd Christensen, education manager with Money Fit by DRS, further explained, “If you do not repay the entire loan plus interest by the end of the term, the lender becomes the new owner of the vehicle per your signed contract.”
If you do not repay the entire loan plus interest by the end of the term, the lender becomes the new owner of the vehicle per your signed contract.”
If this happens, your lender “may tow the vehicle from your driveway,” explained Christensen. Depending on the laws in your state, the lender may even be able to come onto your property to take possession of the car, so long as they don’t break any laws or breach the peace (that is, act aggressively or disturb the peace and quiet of the neighborhood).
It can be difficult to repay title loans, so it’s important to take caution before using this type of financing. Recent research from the CFPB, based on real lending data, included the following findings about title loan borrowers:
- Twenty percent had their vehicle taken by the lender because they didn’t fully repay the loan.
- Eighty percent couldn’t afford to repay the loan in one payment and re-borrowed on the due date.
- More than 50% needed at least four back-to-back loans to pay off the initial loan amount.
The risk of losing your car with a title loan is a serious consideration you should make before getting it. Title loans can be a dangerous financing option, and the long-term consequences of taking out this type of loan can be severe.
FAQ
Do title loans require a credit check?
No, a credit check is usually not required since title loans are secured loans that use your vehicle as collateral. However, lenders can set their own approval requirements, so they may require credit at their discretion.
Are title loans hard to pay back?
Yes, title loans are hard to pay back for two primary reasons. First, the entire loan amount is often due in no more than 15 to 30 days, a very short repayment term that can be hard to meet. Second, in addition to paying back the amount you borrowed, you’ll also need to pay high fees, which often average 25% of the loan amount, equivalent to an APR of 300% or more.
Can you get denied for a title loan?
Yes, you can get denied for a title loan. A common reason for getting declined is not owning your vehicle free-and-clear, as title lenders usually require a vehicle title to be “lien free” and have no outstanding financing. Customers still making payments to a bank or dealer have a lien on their title due to the financing agreement and may not qualify for a title loan.
Where are title loans illegal?
Laws surrounding title loans are complex and vary by state. Even in states where title loans are illegal or restricted, like California, lenders have found legal loopholes enabling them to still offer title loans in the state.
Research from The Pew Charitable Trusts identified lump-sum title loans offered in these 20 states: Alabama, Arizona, Delaware, Florida, Georgia, Idaho, Louisiana, Minnesota, Mississippi, Missouri, Nevada, New Hampshire, New Mexico, Ohio, Oregon, South Dakota, Tennessee, Texas, Utah and Wisconsin. Since state laws change over time, you’ll need to research the current laws in your state to see if title loans are allowed or are offered under a loophole.
Bottom line
Title loans give you quick access to cash, but they can cause you more financial problems if you can’t pay them back on time. Only take out a title loan if you are in a bind, need cash to pay for an emergency and have a realistic plan for how you’ll pay the loan back by the due date.
Proper planning can help you avoid paying excessive interest or having your car seized by the title lender.
Article sources
- American Recovery Association, " State Requirements ." Accessed May 26, 2023.
- Consumer Financial Protection Bureau, " 12 CFR Part 1041 ." Accessed May 26, 2023.
- Federal Reserve, “ Consumer Credit - G.19 .” Accessed May 26, 2023.
- California Department of Financial Protection and Innovation, " Automobile Title Loan Consumer Advisory ." Accessed May 26, 2023.
- Consumer Financial Protection Bureau, " CFPB Finds One-in-Five Auto Title Loan Borrowers Have Vehicle Seized for Failing to Repay Debt ." Accessed May 26, 2023.
- Consumer Financial Protection Bureau, " Protecting servicemembers from predatory lending ." Accessed May 26, 2023.
- Consumer Financial Protection Bureau, " Research finds one-in-five auto title loan borrowers have their vehicle seized ." Accessed May 26, 2023.
- Consumer Financial Protection Bureau, " Single-Payment Vehicle Title Lending ." Accessed May 26, 2023.
- Consumer Financial Protection Bureau, " Submit a complaint about a financial product or service ." Accessed May 26, 2023.
- Cornell Law School Legal Information Institute, " Breach of the Peace ." Accessed May 26, 2023.
- Federal Deposit Insurance Corporation, " Predatory Lending Resources ." Accessed May 26, 2023.
- Federal Trade Commission, " What To Know About Payday and Car Title Loans ." Accessed May 26, 2023.
- Federal Trade Commission, “ Car Title Loans .” Accessed May 26, 2023.
- Federal Trade Commission, " Pink slip slip-up: First FTC cases challenging deceptive car title loans ." Accessed May 26, 2023.
- The Pew Charitable Trusts, “ A Map From Auto Title Loans: Market Practices and Borrowers’ Experiences .” Accessed May 26, 2023.
