Car title loans are loans taken out against the title of your car. These loans give you access to credit, which can typically be as much as 50% of the value of your car. Provided you can repay the loan within a few weeks, an auto title loan could be an option you might consider if you’re facing difficult financial times.
Our guide below explains how an auto title loan works, the features and eligibility criteria you’ll need to consider when you apply, and the pros and cons.
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, however your car is used to secure the loan. Unlike an unsecured payday loan, if you don’t make regular payments on your auto title loan, your vehicle can be repossessed and sold. You will generally have a few weeks to months or even years to repay back your auto title loan, depending on the provider.
Lenders that provide auto title loans usually require that you own your vehicle outright. If you’re leasing your car or still making payments on it, you may have a harder time finding a lender who is 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% of the value of the car in loans, and you’ll have to start making payments based on a schedule that can be found in your loan contract.
Features of car title loans
Consider these factors 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 you take out. Even a small difference in percentage can result in you paying hundreds of dollars more for your borrowed money. Be on the lookout for hidden fees which can drive up the cost of your loan.
Loan amount. The amount you can borrow will likely depend 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, with the value being determined after an appraisal.
Loan term. Loan terms will differ between providers, but can last anywhere from weeks to a couple of years.
Payment flexibility. Find out if a lender lets you make payments that match your paycheque schedule from your job. This might be weekly, bi-weekly or monthly. This means you can immediately pay off your loan and budget your income and expenses more easily.
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 it’s due without incurring any additional costs, you can end up saving a lot of money in interest payments.
Benefits and drawbacks to consider
Receive your funds quickly. If you apply in person at a physical location, you can generally 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 credit score. Lenders will be willing to lend to you because of the secure nature of the auto title 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 accrues, the lender has the right to take possession of your vehicle. This could leave you in a much worse financial situation than you were in to begin with, so make sure you know what you are getting into before you sign the loan contract.
High cost. While these loans typically come with lower interest rates than payday loans, they are still costly when compared to standard loans. Consider whether you can afford the repayments before taking out a loan.
Disreputable lenders. Not all lenders are equally reputable and trustworthy. Compare different lenders in order to find the lowest interest rate. If you wind up choosing a dishonest lender and end up paying incredibly high interest rates, it can put you at risk of losing your car.
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, putting you in a worse situation than you were in before.
Refinancing. If you can’t pay off your loan in the original term set out in your contract, the lender may allow you to refinance or roll over your loan. You’ll be charged additional fees and interest on top of your existing fees.
Skimming over 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 you. If you don’t agree to the terms, you’re under no obligation to accept the loan.
How to apply
Applications can be submitted online or in person.
Be a Canadian citizen or permanent resident
Be at least 18 years old, or the age of majority in your province or territory
Have proof of a steady income
Own your car outright, however some lenders may approve you for a loan if your car is almost paid off
Steps to apply:
Go online or in person to a lender
Provide your name, date of birth, address and email address
Produce a valid form of ID
Give details about your employment status and income
Have your vehicle appraised
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.
Abby needs money for tuition
Imagine this scenario: Even 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 payday 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 they are with typical payday loans, and she doesn’t want to put other expenses on her credit card and run the risk of paying high interest rates on it.
Abby also knows that she’ll be able repay the loan within the next six months. After a quick car inspection, she’s able to drive away with cash in hand and still use her car.
Frequently asked questions about car title loans
Since your car acts as collateral, lenders usually won’t use your bad credit history as a factor when determining if you will be given a loan. An auto title loan is a secured loan, which typically means your credit history doesn’t play a very big role in the approval process.
You’ll need to submit a clear title that shows you own the vehicle. The application will also require information about your employment, income and identity.
This means your car has no outstanding loans or judgments against it and that you own your car outright. You’re not making any payments to a dealership, financial institution or any other type of lender.
Yes, some lenders also offer motorcycle, RV, boat and other types of title loans.
Yes, you will need to be the legal owner of the vehicle to get a car title loan.
Confirm with the lender whether you’ll need permission from the other person listed on the title or if you’ll need to get a joint car title loan.
Elizabeth Barry is Finder's global fintech editor. She has written about finance for over six years and has been featured in a range of publications and media including Seven News, the ABC, Mamamia, Dynamic Business and Financy. Elizabeth has a Bachelor of Communications and a Master of Creative Writing from the University of Technology Sydney. In 2017, she received the Highly Commended award for Best New Journalist at the IT Journalism Awards. Elizabeth's passion is writing about innovations in financial services (which has surprised her more than anyone else).
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