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How do title loans work?

Title loans allow borrowers to take out cash using their car as collateral

by Jessica Render ConsumerAffairs Research Team
man handing money to another man

A title loan is a secured, short-term loan that uses your motor vehicle as collateral. To get a car title loan, you must own your vehicle outright. To apply, 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.

What do you need for a title loan?

You need to own a car or motorcycle that can be used as collateral in order to get a title loan. Your vehicle can’t have an existing lien. Requirements may vary slightly between lenders, but you will typically need to 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
  • Photos of vehicle or vehicle itself
  • Proof of insurance
  • A list of references

Most title loan lenders do not require a minimum credit score to get a loan, though some require further documentation about the car’s history. Additionally, some states require lenders to ask for proof of income before providing 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, as well as what materials are needed to apply.

When getting a title loan, customers will be able to keep possession of their car as they pay the loan back. However, many lenders will require customers to provide a duplicate car key to install a remote shut off system or GPS tracker.

How do I get 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:

  1. Bring your vehicle to the title loan company for assessment.
  2. Fill out an application, which includes personal information and your income source.
  3. Review the offer the title loan company gives you based on your application and your vehicle’s value.
  4. Walk away with your vehicle and your cash (the lender keeps your title).
  5. Pay your loan back within the loan’s timeframe to avoid paying excessive interest or having your car turned off. (Some companies request GPS monitoring and control, which allows them to shut off the car and pick it up for missed payments.)

Common questions about title loans

How much can you get for a car title loan?
The title loan company determines the amount offered based on application review and your vehicle’s value. Loan amounts typically range from $100–$10,000, although some companies, such as Check into Cash and LoanMart, offer max car title loans of $25,000–$50,000.

How much is the interest on a car title loan?
Title loans have a higher-than-average interest rate compared to other forms of credit. The average 25 percent monthly interest rates means you’ll be paying into the triple digits when it comes to APR (300 percent). That means you’d be paying an extra $250 on interest alone for a title loan in the amount of $1,000.

Can military members get a title loan?
Active military members are not eligible for title loans. The Federal Military Lending Act of 2006 prohibited payday and title loan lenders from lending to those in the military. The act also capped interest rates for all loans at 36 percent APR for borrowers in the military.

Can a car title loan affect your credit?
Because a title loan is a secured loan that uses your vehicle as collateral, no credit check is required during the application process. As long as you pay your loan back on time, your credit score shouldn’t get a negative mark.

Do title loans build credit?
No. Because a title loan is a secured debt that uses your vehicle as collateral, you don’t need to have a good credit score to obtain one, and it won’t show up on your credit score in the same way an unsecured loan would. Essentially, your car is your line of credit you’re borrowing against something you already own outright and not accruing cash debt.

Can I get a title loan while still paying off my car?
No. Title loan companies require a vehicle title be “lien free,” meaning that the vehicle must be owned outright by the customer seeking the loan. Customers still making payments to a bank or dealer have a lien on their title due to the financing agreement. Liens can also be put on a title by the government if the vehicle’s owner is behind on property or other taxes.

Can you go to jail over a title loan?
No. You cannot go to jail for failure to pay a title loan. The only right the lender has is to take ownership of your vehicle to recoup their losses.

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 in time. Only take out a title loan if you are in a bind and need cash for an emergency. Have a plan to pay it back by the due date to avoid paying excessive interest or having your car shut off by the title lender.

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by Jessica Render ConsumerAffairs Research Team

As a member of the ConsumerAffairs research team, Jessica Render is dedicated to providing well-researched, valuable content designed to help consumers make informed purchase decisions they can feel confident making. She holds a degree in journalism from Oral Roberts University.