Title loans provide fast, short-term cash for people in a crunch. In exchange for the title𒈔 to your car, a title loan lender will give you money. The catch is there’s usually an extremely short repayment window — two to four weeks — and if you don’t pay up, the lender keeps your car.
Learn the key pros and cons of u♋sing title loans when 🌺you need money fast.
- What is a title loan?
- Pros
- Cons
- Is a title loan the right choice?
- Title loan alternatives
- Frequently asked questions
What is a title loan?
A title loan uses the title of an asset as collateral. The most common kind of title loan is a car title loan, where the lender holds on to your vehicle’s title to ensure you repay the money yo𒁃u borrow. If you don’t repay the loan in full, you lose the car.
Typically, you’ll need to own your car outright if you want to get a title loan. The title needs to be lien-free, meaning no one else has a claim to it (such as the company you financed the car through). Lenders often won’t or can’t take your car title if you still owe money on the car. If you borrowed money through an auto loan to purchase the car, your title ꦜis probably stಞill with the auto lender.
Most title loans are issued quickly, since you’ve got the vehicle title as collateral. You can borrow a few hundred to a few thousand d💃ollars — but you’ll typically only have 30 days or less to 🔴pay it back, plus interest.
To get the loan, you’ll generally need to bring the title, driver’s license, insurance card, and🥃 spare keys to the loan office. Usually, you’ll be able to keep driving your vehicle. Once yℱou’ve repaid the loan in full, you’ll get your car title back.
Pros of title loans
- Easy approval: Title loans use your title and not your credit score for approval (unlike personal loan lenders that often run a credit check). Using your title makes it easier to get approved, even if your credit score’s not so good.
- Fast funding: Some lenders will fund your loan the same day you apply.
- Small loan amounts: Title loans let you borrow smaller amounts than many other types of loans, which is better if you only need, say, a couple of hundred dollars.
- Convenient: The process for getting a title loan is often faster and easier than with other types of loans, and some lenders have Saturday hours.
Cons of title loans
- Expensive way to borrow: As with payday loans, finance charges on a title loan are usually high. For instance, suppose you borrow $500 for 30 days, with an $80 finance fee. The annual percentage rate of that loan is a whopping 195% — much higher than the average 20% APR for credit cards and 7.48% APR for car loans.
- Short repayment window: You usually only have 30 days (or less) to repay your car title loan. It’s not always easy to come up with the funds in just a few weeks.
- Debt can grow quickly: Some title loan lenders will “rollover” your loan into a new loan. This can cause your debt to add up quickly.
- High risk: With a title loan, you don’t just risk the cash — you risk losing your car.
Is a title loan the right choice?
Title loans 🔯can be tempting when you need cash fast and your options are limited. But it’s almost always best to pursue an alternative source of funds.
Plus, put🙈ting your car or truck title 🦩in a lender’s hands is risky. If you default on a title loan and lose your vehicle, it could prove difficult to replace it.
Sometimes, in an emergency, a title loan may𒉰 be your only option. If you truly have no other choice, do everything you can to make sure the ꧟loan is repaid on time.
Title loan alternatives
Fortunately, you proba𒁃bly have several other options worth considering.
- Use your credit card: If you have a credit card, you can ask for a cash advance. Keep in mind that interest rates on cash advances are usually high, and there are limits to your credit.
- Borrow from a trusted friend: If you do, get the terms of the loan in writing, and take repayment seriously.
- Take out a personal loan: An unsecured personal loan can help you get the cash you need without using your assets (like your car) as collateral. Credible lets you compare lenders so you can pick a personal loan with good terms.
- Try peer-to-peer (P2P) lending: Fintech investors often use artificial intelligence to determine a borrower’s risk, so P2P might be a good choice if your credit is on the lower end.
Frequently asked questions
How much can I borrow with a title loan?
The max you can borrow using a titlꦇe loan will probably be about $15,000. Most lenders are going to cap the loan amount at 25% to 50% of your car’s value. You can borrow up to the limit, but it👍’s better to choose a lower amount if you don’t need that much.
For example, if your car title is worth $20,000, and the lender offers you a loan of 50% of your car’s value, the title loan would be for $10,000. Or, if you𒐪r car is worth $10,000, and the title loan is for 35% of the value, the loan amount would be $3,500. To find out the value of your car, use sites like Kelley Blue Book or J.D. Power to research estimates.
How can I get a title loan?
Some lenders specialize in this type of loan, but they’re not available in every state. You can apply online or in personꦐ at a loan store, depending on where you live. You’ll need to have some documents with you when you apply, including:
- Auto title
- Identification card
- Insurance card
- Proof of income (such as disability payments or paycheck stubs)
You might also need to provi🔥de your Social Security information, a bank statement, registration information, and possibly a car inspection report.
The loan office agent might also need to 💙appraise your vehicle before giving y💛ou the cash. If everything looks good, you can get approved the same day — sometimes in less than an hour.
What if I share the title with someone?
You have to be the legal owner of the vehicle if you want to use it for a title loan. If someone else owns the car, but you drive 🐽it, that won’t work. If your name is on the title along with someone🅺 else’s, you might need that person to fill out the application for the title loan with you. If they refuse, you’ll probably have a difficult time getting the title loan.
If you’re in a cash crunch, it’s understandable that you want fast, easy money. But before you put your vehicle at risk, make sure you’ve looked at all the pros and cons ไof using a title loan. You might 💜find that an alternative source of funds is the better bet for your financial needs.