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Car title loans: What they are and how they work Advertiser Disclosure Advertiser Disclosure We are an independent, advertising-supported comparison service. Our mission is to help you make smarter financial decisions by offering you interactive financial calculators and tools that provide objective and original content, by enabling users to conduct research and compare information at no cost – so that you can make informed financial decisions. Bankrate has partnerships with issuers such as, but not restricted to, American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Earn Money The offers that appear on this site come from companies who pay us. This compensation can affect the way and when products are featured on this website, for example for instance, the order in which they may be listed within the categories of listing and other categories, unless prohibited by law for our mortgage, home equity and other home loan products. But this compensation does affect the information we provide, or the reviews appear on this website. We do not contain the vast array of companies or financial deals that might be open to you. Barry Winiker/Getty Images
5 min read Published on 19 October, 2022.
Writer: David McMillin Written by Contributing writer David McMillin is a contributing writer for Bankrate and writes about topics like mortgages, credit cards banking, taxes, and travel. David’s goal is to help readers figure out how to save money and worry less.
Editor: Rhys Subitch Editor: Rhys Subitch Auto loans Editor Rhys has been writing and editing for Bankrate from late 2021. They are passionate about helping readers gain confidence to take control of their finances through providing precise, well-studied information that breaks down complex topics into manageable bites. The Bankrate promise
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They ensure that what we write ensures that everything we publish is accurate, objective and reliable. Our loans journalists and editors concentrate on the areas that consumers are concerned about the most — the various types of loans available, the best rates, the most reliable lenders, how to pay off debt and much more. So you’ll be able to feel secure when making your decision to invest your money. Integrity of the editing
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We are compensated in exchange for the placement of sponsored products and, services, or by you clicking on certain hyperlinks on our site. So, this compensation can influence the manner, place and when products appear within listing categories, except where prohibited by law. This is the case for our mortgage, home equity, and other home loan products. Other elements, like our own website rules and whether the product is offered in the area you reside in or is within your personal credit score can also impact how and where products appear on this site. Although we try to offer the most diverse selection of products, Bankrate does not include details about every financial or credit products or services. All loans come with risks in the event that they’re not paid in time. But a title loan comes with a particular risky consequence if you fail to meet your payment obligations: The lender could take your car. Before you consider getting an auto title loan, it’s vital to be aware of the possible drawbacks of using your vehicle as collateral for borrowing money. How do you define car title loans? A car title loan or “pink slip loan,” allows you to borrow anywhere from 25 to 50 percent of the value of your car in exchange to give your lender you the title for your vehicle to use as collateral. These short-term loans typically start at $100 and have repayment terms of 15 to 30 days. Title car loans are designed for those with credit issues in the past who need fast cash. Many lenders have minimal or no requirements for credit -Some won’t even . The application process is typically simple, and if accepted, you could expect to receive funding as soon as 24 hours later, in some cases, it’s even faster. The ease of access means these loan products come with steep interest rates. Certain states limit the amount of interest lenders are allowed to charge however, others have no limitations. And in some states, lenders are prohibited from offering auto title loans to consumers. If you are in a state where car title loans are allowed, you are likely to need to obtain a loan. Some lenders will offer these loans when your car is close to being paid off, but this is less common. What is the way that titles loans work? Title car loans come in a range of varieties. Certain are single-payment loans and the borrower has to pay the total amount of the loan and the interest fee within a month , or that is. The loan is repaid over three or six months, based on the lender. Although the word “car” might be part of the title of the product but the loans also can be available for motorcycles, boats and recreational vehicles. You can apply on the internet or in person, but you’ll need a physical location to show your vehicle in front of the lender. Make sure you give the lender with a clear title, and a photo ID when applying for a title car loan. The lender may also require keys. The vehicle will remain in your possession throughout the loan period, until you fail to pay the loan. To illustrate how these loans operate, let’s say you own a car valued at $5,000, and you find yourself in an emergency and need $1,000. A title loan allows you to use your vehicle as collateral so you can access the money quickly. Like a mortgage, which utilizes your house as collateral the title loan utilizes your car as collateral. To obtain the title of your vehicle back, the loan must be paid back in total, which includes the high fees the lender charges to provide the cash. The fees usually include an average monthly finance fee of 25 percent. This amounts to an annual percentage rate at 300 percent. If you take out a $1000 loan, you’ll pay another $250 of interest, even when the loan is paid back in only 30 days. If you’re late with your payment and late payment penalties are determined, your loan could cost you a small fortune. Certain lenders may also charge processing, origination and document charges, driving the costs of borrowing higher. You may also be required to obtain and pay for an emergency roadside assistance plan for your car. The downsides of title loans While the process of getting a title loan may be easy however, it comes with serious costs and risks according to Graciela Aponte Diaz, director of federal campaigns for the Center for Responsible Lending. “If you don’t repay the loan in time the loan is rolled over to another cycle, which incurs more costs,” says Bruce McClary, senior vice president of communications at the National Foundation for Credit Counseling. “It creates a very difficult circumstance for those already struggling to pay. This is the most precise definition of the debt cycle.” The main drawback to this is the possibility of losing your car. If you’re unable to pay back the loan the lender can take your vehicle and sell it to recoup their investment. And this isn’t all that common. A study from the found that 20 percent of those who get title loans are able to seize their cars. Even worse, “some car title lenders install the GPS device, also known as”kill switch”which could stop the car of the borrower from starting and use this as a means of collecting an amount of debt or making it easier to seize the car,” Aponte-Diaz adds. With the real danger of losing your main means of transportation, it’s not difficult to see how a title loan can be a stressful experience. Alternatives to title loans With all the serious disadvantages, McClary recommends reaching out to traditional banks and credit unions to find less expensive loans. Also, you could make use of a credit card if you have one in your possession for your immediate cash requirements. Even if you don’t have an account with a bank account, have a poor credit score, or had financial issues in the past, it’s worth investigating all your alternatives. “It’s fascinating how flexible traditional lenders are,” McClary says. “There are many credit unions that are prepared to deal with non-banked customers.” You can apply for a personal loan Although qualifying for an individual loan could be difficult for those with bad credit, you may have options. Some online lenders you could be eligible to apply for. If you’re a credit union member, you can also try explaining your situation to an official at a bank. They may approve you for the loan based on the strength of your relationship and good banking background. You can also ask a friend or relative with a stable source of income and a strong credit score to join you as a , strengthening the odds of getting approved. Seek an alternative to a payday alternative loan Payday alternative loans are a cheaper option to consider. They are available through a few credit unions, however you must be a member to access this loan product. Loan amounts range between $200 and $2,000 that are payable over a period of between one and 12 months. The cost of application is set at $20 and you’ll not pay more than 28 percent interest. This means that payday alternative loans cheaper than title loans and also bad credit personal loans. Make use of a credit card could also make use of credit card in the event that you have a dire financial crisis. It is also possible to take money through your credit card via an . Be aware that the rate of interest for cash advances is usually higher than you’ll pay for purchases, up to 30% variable. Plus, there’s no grace period and interest will start accruing right away. Be prepared to pay an ATM fee to withdraw funds. McClary rarely advises adding to credit card debt however he says it’s a better option as opposed to an auto title loan since you’re likely to pay far lower interest rates than with the car title loan. The bottom line Car title loans are a convenient solution to access cash quickly. However, the cost is generally far from the danger involved, and you could end up in a more dire situation than before you took off the loan. Think about alternatives that are more affordable for credit cards, private loan or payday alternative loan prior to settling on a car title loan. If you’ve exhausted all your alternatives and you have to take the car title loan, be sure to read the fine details. Title lenders must show you loan terms in writing before signing, and federal law requires that they be transparent and honest about the total amount that they will charge for the loan.
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Written by a contributing writer David McMillin is a contributing writer for Bankrate and covers topics such as credit cards, mortgages banking, taxes, and travel. David’s goal is to help readers figure out how to save money and also stress less.
Edited by Rhys Subitch The edit was done by Auto loans editor Rhys has been editing and writing for Bankrate from late 2021. They are passionate about helping readers gain the confidence to control their finances with clear, well-researched details that cut otherwise complicated topics into digestible pieces.
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