Your car can do more than get you from one place to another. Read more to find out the benefits of auto title loans.
Auto title loans are loans taken out against the title of your car. They give you access to credit, usually as much as 50% of the value of your car. Provided you can repay within a few weeks, an auto title loan could be an option when you’re facing hard financial times.
Our guide below addresses the fees, features and eligibility criteria you’ll need to consider when you apply.
How do auto title loans work?
Auto title loans, also referred to as title pawns, are loans secured to the title of your vehicle. This means that you can still drive your car while you’re repaying the loan, usually within a few weeks of taking it out. Unlike an unsecured payday loan, if you don’t make regular payments on your auto title loan, your vehicle can be repossessed and sold.
Lenders that provide these loans usually require you to have a lien-free title, which means you need to own your vehicle outright. If you’re making car payments, that counts as a loan against the car, and you might have a harder time finding a lender willing to work with you.
After you apply, you may have to take your vehicle to a physical location to get it appraised. You’ll usually be offered 25-50% the value of the car in loans, and you’ll have to start making payments based on a schedule found determined in your loan contract.
Many states regulate auto title loans like payday loans, so be sure to check if they’re available before you take one out.
Compare other short-term loan options
A selection of short-term loans you can apply for
Here are some loan providers that you can apply with. Note that the maximum loan amount is based on the lender’s maximum and will vary based on your state of residence.
A selection of lender-matching services you can apply with
These lender-matching services are not lenders, loan brokers or agents for any lender or loan broker. They don’t make credit decisions. They focus on trying to match you with a lender that might be able to provide you the funds you seek. Note that the maximum loan amount is based on the lender’s maximum and will vary based on your state of residence. If you proceed with one of these services, confirm that the lender is reputable by checking with your local government.
Some features of car title loans
Consider these aspects when you’re comparing auto title loans:
- Interest rate and fees. The interest rate can have a big impact on the overall cost of the loan. Even a small difference in percentage can result in you paying hundreds of dollars more. Be on the lookout for hidden fees, which can also drive up the cost of your loan.
- Loan amount. The amount you can borrow depends on how much your car is appraised for and the maximum loan amount set by the lender. Generally, you can borrow 25-50% of the value of your vehicle. This usually amounts to a loan of between $100 to up to $10,000.
- Loan term. Loan terms differ between providers and states.
- Payment flexibility. Find out if a lender lets you make payments that match your pay schedule. This might be weekly, bi-monthly, or monthly.
- Making extra payments. Some lenders charge penalties or fees if you decide to make additional payments or if you decide to repay the loan ahead of time. If you can repay a loan before schedule without incurring any additional costs, you can save in interest.
Abby needs money for tuitionEven though Abby budgeted for the month, an unexpected car repair left her $400 short on her tuition this semester.
She doesn’t want to take out a line of credit or a short-term loan, but she needs the money. Her car is in good condition, and her friend tells her to look into local auto title loans. The interest rates aren’t as high as with a short-term loan, and she doesn’t run the risk of buying more than she can afford with a credit card. Abby also knows that she’ll be able repay by the end of the month.
It’s a good decision, and after a quick inspection, she is able to drive away with cash in hand.
Benefits and drawbacks of auto title loans
- Receive your funds quickly. If you apply at a physical location, you can receive your approved funds almost as soon as you accept the loan’s contract. With online applications, lenders can transfer funds into your bank account by the next business day.
- Bad credit is OK. Since you’re providing collateral in the form of your vehicle’s title, you don’t have to have a good score. Lenders will be more willing to lend to you because of the secure nature of the loan.
- Better rates. Auto title loans tend to offer lower interest rates when compared to other unconventional forms of credit like payday loans and installment loans.
- Possibility of losing your car. If you aren’t able to pay back your initial loan plus the interest it accures, the lender has the right to take possession of your vehicle. This could leave you in a much worse financial situation.
- High cost. While these come with a lower cost than payday loans, they are still costly when compared to standard loans. Consider if you can afford the repayments before taking out a loan.
- Disreputable lenders. Not all lenders are licensed to operate a loan business in your state. This means they won’t be following regulations and could be working illegally, which puts you at risk of losing your car because of incredibly high interest rates.
Auto title loans for military personnel
Servicemembers and their dependents are protected under special provisions of federal law and a Department of Defense ruling. These provisions relate to payday loans, tax refund anticipation loans, and vehicle title loans. According to these provisions, the military APR for car title loans cannot exceed 36%. This applies to all title loans with terms of less than 181 days.
Things to avoid
- Add-ons. Lenders may offer add-ons with the loan, such as roadside service plans, that can increase the cost of your loan. These add-ons may be a requirement of the auto title loan, so it’s important to find out the value of the add-on in relation to its cost before agreeing.
- Taking on a loan you can’t afford. If you think you may have trouble paying off a loan in a timely manner, you may want to avoid taking it. If you don’t keep up your payments, you could generate more fees, damage your credit and possibly lose your vehicle.
- Refinancing. If you can’t pay off your loan in the original term set out in your contract, the lender may allow you refinance (roll over) your loan. You’ll be charged additional fees and interest on top of your existing fees.
- Skimming the loan offer document. Make sure you go through the terms and conditions of your loan carefully. This should give you a clear indication of how much the loan will end up costing. If you don’t agree to the terms, you are under no obligation to accept the loan.
How to apply
Applications can be submitted online or in person.
- Be a US citizen or permanent resident
- Be at least 18 years old (varies by state)
- Have steady income
- Own your car outright
Steps to apply:
- Go online or in person to a lender
- Provide your name, date of birth, address, and email address
- Provide your state-issued ID
- Give details about your employment status and income
- Have your vehicle evaluated
If you apply online, your vehicle will likely be evaluated in person at one of the lender’s physical locations, usually by the next business day.