A car title loan lets you borrow against a vehicle you already own and keep driving it while you repay. It is fast, and it is expensive. Both of those facts matter, and this guide treats them as equally important. Below: how these loans work, what they actually cost, what lenders require, and how to tell a safe lender from a predatory one.
This guide explains how car title loans work across the industry, what they cost, and how to choose a lender. If you want to see how our own process works step by step, read how Swift Title Loans works.
Short Summary
- A title loan is fast and secured against your vehicle, so approval leans on what the car is worth and whether you can afford the payments, not on your credit score alone.
- Cost is the thing to compare. CFPB research puts the typical single-payment title loan at around 300% APR, and the median installment title loan at 259%.
- The biggest risk is losing the vehicle. Check the total cost, the repayment structure and the lender’s state licence before you sign anything.
Understanding Car Title Loans
Car title loans are short-term, high-interest loans that use your car title as collateral. They can be a quick solution for those with poor credit or in need of fast cash. If you’re in such a situation, you might consider getting a title loan. However, they come with risks and considerations that must be carefully weighed before proceeding.
Keep reading to learn how car title loans work, eligibility requirements, and potential risks associated with them.
How Car Title Loans Work
Car title loans are a form of secured loans, meaning the borrower’s car title serves as collateral. This means that if the borrower defaults on the loan, the lender has the legal right to repossess the vehicle. These loans cater to those with past credit issues who need quick access to funds, but they come with high interest rates. Different states have varying regulations on interest rates, with some having no restrictions and others prohibiting lenders from offering car title loans altogether.
The application process for a car title loan is generally straightforward. Funding times vary by lender and by state. Some take a day or more. Same-day funding is available from some lenders, including Swift Title Loans if you apply before noon on a business day. However, it’s important to understand the terms of the loan. Single-payment loans typically require repayment in one lump sum within 30 days and carry an annual percentage rate of around 300%, according to CFPB research into single-payment vehicle title lending. Installment title loans spread repayment over several months instead. The CFPB’s supplemental findings put their median APR at 259%.
Eligibility Requirements
To qualify for a title loan you generally need to own the vehicle outright, hold the title in your own name, and be at least 18. Lenders typically ask for a clear, lien-free vehicle title, a government-issued photo ID, proof of income, proof of address, proof of auto insurance, and either photos of the vehicle or the vehicle itself.
Approval rests on what the vehicle is worth and on whether you can afford the payments, not on your credit score alone. Lenders differ in how they check credit: some run a full credit check, others use a soft or non-traditional check. A request to Swift Title Loans does not affect your FICO score.
If you are a credit union member, you may also want to explore payday alternative loans as an option. It’s essential to gather the necessary documents before applying for a car title loan. These documents may include a clear vehicle title, a valid government-issued ID, and other documents required by the lender or state, such as proof of income or residency. But be aware that the exact documents needed may differ depending on the lender and state.
Risks and Considerations
Car title loans may seem like a quick fix, but they come with potential risks. High interest rates and fees can make these loans very expensive, and if payments are not made or the loan is not repaid, the borrower may lose their vehicle. The average monthly finance fee is 25%, which works out to roughly 300% a year. CFPB research also found that one in five single-payment title loan borrowers had their vehicle seized, and that more than 80% renewed or re-borrowed because they could not repay the lump sum when it fell due. Some car title lenders even install a GPS device, or “kill switch,” that can prevent the borrower’s car from starting, making it easier to seize the car if the borrower defaults.
Steps to Obtain a Car Title Loan
Now that you understand the risks and requirements of car title loans, let’s walk through the steps of obtaining one. This involves researching lenders, gathering necessary documents, and completing the application process.
Research Lenders
Before applying for a car title loan, it’s important to research potential lenders to find the best fit for your needs. Check that the lender is licensed in your state, since title lending rules differ sharply and some states bar it entirely. Compare the total cost of the loan rather than the monthly payment. Ask whether there is a prepayment penalty, and whether you have to bring the vehicle in or can verify it remotely.
Gather Necessary Documents
Once you’ve chosen a lender, it’s time to gather the necessary documents for your car title loan. This typically includes a clear vehicle title, a valid government-issued ID, and other documents that may be required by the lender or state, such as proof of income or residency.
Be sure to reach out to the lender to verify the documents you have gathered. They may require additional documents or information to confirm your application. Remember that the exact documents needed may differ depending on the lender and state, so it’s crucial to adhere to the lender’s guidelines when submitting your paperwork.
Complete the Application Process
With your documents in hand, it’s time to complete the application process for your car title loan. You can apply either online or in person. Some lenders require you to bring the vehicle in so they can inspect it. Others, including Swift Title Loans, let you verify it with photos or a short video instead.^ The car will remain in your possession during the repayment period, as long as you make the agreed-upon payments.
Application times vary by lender. In a store the application process commonly takes 15 to 45 minutes. Online applications are usually faster, and Swift Title Loans takes about 7 minutes.* You will need basic information such as your name, address, and contact details. You’ll also need to provide details about your vehicle, including the make, model, and year.
Once your application is approved, funding times depend on the lender and your state.
Alternatives to Car Title Loans
Car title loans may not be the best fit for everyone, especially those with bad credit. Luckily, there are alternatives to consider, such as personal loans, payday alternative loans, and credit card cash advances.
These options can offer lower interest rates and more flexible repayment terms, giving you more control over your financial situation.
Personal Loans
Personal loans are a popular alternative to car title loans, as they typically offer more competitive interest rates and a pre-defined repayment plan. Unlike car title loans, personal loans are usually unsecured, meaning they don’t require collateral. You can apply for personal loans through banks, credit unions, or online lenders.
Installment loans, a type of personal loan, allow you to borrow a larger sum of money and repay it in fixed monthly installments over a longer period, as opposed to weeks. The exact terms of a personal loan will depend on factors such as your credit score, income, and the lender’s requirements. However, personal loans generally offer more favorable terms than car title loans, making them a more cost-effective way to borrow money.
Payday Alternative Loans
Payday alternative loans (PALs) are another option worth considering, especially if you’re a member of a federal credit union. PALs generally have lower interest rates than traditional payday loans, making them a more affordable choice. They provide loan amounts ranging from $200 to $2,000, payable over a period of one to 12 months, with an application fee limited to $20 and an interest rate that does not exceed 28%.
Eligibility requirements for payday alternative loans may vary depending on the credit union, but generally include being a member for at least one month, having a steady source of income, and possessing valid identification.
Credit Card Cash Advances
A credit card cash advance is another alternative to a car title loan. It’s a withdrawal of funds from your credit card account, essentially a short-term loan offered by your credit card issuer. While cash advances can be a convenient way to access funds quickly, they typically come with high interest rates and fees, so it’s essential to weigh the costs before proceeding.
Obtaining a credit card cash advance is straightforward – you can request it at an ATM, through the credit card issuer’s website or mobile app, or by contacting the issuer. However, be aware of the potential risks, such as high fees, increased debt, and the possibility of negatively affecting your credit score.
Tips for Repaying a Car Title Loan
If you’ve decided to move forward with a car title loan, it’s crucial to have a plan in place for repayment. In this section, we’ll discuss tips for repaying your car title loan, such as creating a repayment plan, considering refinancing, and seeking financial assistance.
Creating a repayment plan is an important step in managing your car title loan. You should consider your budget and income, and create a plan that works for you. You should also consider refinancing your loan if you are a student.
Create a Repayment Plan
Having a solid repayment plan in place is essential to successfully repay your car title loan. Start by assessing your budget and determining how much you can afford to allocate toward the loan each month. Make sure to account for any additional fees or charges that may be associated with your loan.
Next, consider reaching out to your lender to explore potential repayment options. They may be willing to work with you on a payment plan that fits your budget, or even negotiate a reduction in interest rates or monthly payments.
Consider Refinancing
Refinancing your car title loan could help make repayment more manageable. This involves replacing your current title loan debt with a new loan, possibly from your existing lender or a new one, in order to obtain different terms and a lower monthly payment. This could mean a lower interest rate, an extended loan term, or both.
However, refinancing isn’t always the best option for everyone. It’s important to carefully weigh the pros and cons before making a decision. In some cases, refinancing may not result in significant savings or may even increase the overall cost of the loan.
Seek Financial Assistance
If you’re struggling to repay your car title loan, consider seeking financial assistance. Non-profit credit organizations, such as Upsolve, may be able to provide help with repayment. You can also reach out to your lender to discuss potential options for reducing interest rates, monthly payments, or extending the loan term.
Remember, it’s essential to explore all available options before resorting to taking out another loan to repay your car title loan. Additional borrowing could result in further financial strain and make it even more challenging to repay your debt.
Summary
In conclusion, car title loans can be a quick solution for those in need of fast cash, but it’s important to understand the associated risks and requirements. Before taking out a car title loan, research lenders, gather necessary documents, and complete the application process. Additionally, consider alternatives such as personal loans, payday alternative loans, and credit card cash advances. If you do decide to proceed with a car title loan, have a solid repayment plan in place, explore refinancing options, and seek financial assistance if needed. With careful planning and consideration, you can make informed decisions about your financial future.
Frequently Asked Questions
The disadvantages of a title loan can be significant. A high-interest rate is often associated with a title loan, and if the loan isn’t repaid on time, late fees and additional interest can make the amount owed even larger.
Furthermore, the cost of these loans may make the monthly payments hard to keep up with, and falling behind can put your vehicle at risk.
You can get a title loan with an amount starting from $100, depending on the value of your vehicle. To obtain a title loan, you must give the lender your car title as collateral and agree to repay the loan plus interest in fixed monthly installments, usually over 12 to 36 months depending on your state and your loan agreement.
