What Is a Title Loan and How Does It Work?

FT Contributor  | 

Car title loans can help you get access to a sum of money quickly when you need it. To get a title loan, you must place your vehicle up for collateral and get approved, then you’re provided with cash. The loan amount you qualify for depends on the equity you have in your car. According to the Federal Trade Commission, lenders only provide a loan amount that is about 25% to 50% of the car’s value, even if your vehicle is paid off. This keeps the risk low for the lender.

The loan amount must be paid back to the lender in a short time frame, along with interest. While there are drawbacks to obtaining a car title loan, this quick money can help you pay for unexpected expenses, such as:

  • Medical bills.
  • Home repair costs.
  • Down payments for housing.
  • School tuition.
  • Vacations.
  • Legal fees.
  • Credit card balances.
  • Business expenses or startup costs.
  • Rent or mortgage payments.

A car title loan can help you to pay for unexpected expenses when you don’t have the savings to cover them. However, while these loans help with short-term monetary solutions, they shouldn’t be part of your long-term budget or financial strategy.

Title Pawn vs. Title Loan

While the terms “title pawn” and “title loan” are often used interchangeably, there is one significant difference between the two. When you attempt to obtain a title loan, you’ll have to agree to a credit check. However, a title pawn doesn’t usually require a credit check. If you’re shopping around for the best title loan in your area, you may see a car title loan called by other names, such as:

  • Auto title loan.
  • Title collateral loan.
  • Personal vehicle pawn loan.

While these terms all sound a bit different, the requirements are generally the same. However, each lender may provide its own terms, conditions, and interest rates. It’s important to understand the terms of the loan and what you’ll be responsible for before signing the loan contract.

How Do Title Loans Work?

A title loan is similar to a payday loan because it’s a short-term, high-cost loan that provides a lump sum of money fast. Depending on what the lender offers, the loan amount can be paid back within 30 days or with installments over the course of three to six months. The interest rate is usually high on car title loans and the consequences for not making payments are severe.

To get a title pawn or title loan, you must visit a store that provides these financial services. A representative runs your credit, if needed, and verifies your vehicle title. He or she may also complete an appraisal of the vehicle before deciding your loan amount. You are provided with a loan contract and if you agree to the loan terms offered, you must sign the contract.

You are required to give the store your car title, but you can keep your car for the duration of the loan. The store will provide you with the loan amount, usually on the spot or by direct deposit into your account. You’re responsible for making loan payments by the deadlines agreed upon in the contract. If you fail to make loan payments, the store can send your account to collections and can take the steps necessary to repossess your car and sell it.

Title Loan Requirements

Whether you go to a title loan store or shop for title loans online, you’ll need to provide specific information and items to prove your identity and the equity you have in your car. When you shop for a car title loan, you’ll need to bring:

  • The title of your car.
  • Government-issued identification.
  • Photos of your car.

If you’re visiting a title loan store, you may be required to bring your vehicle with you so a staff member can complete an appraisal. During your visit, a representative may ask you to fill out a loan application to better understand your financial situation and the loan amount you qualify for.

Where to Get a Title Loan

You can visit a store that offers title loans to get money fast. When you visit a store to obtain your loan, you have the benefit of speaking with a representative and asking questions about the loan terms to ensure you thoroughly understand your responsibility and the consequences of not paying the loan.

Meeting with a representative in a store also allows the financial professional to complete an in-person appraisal of your vehicle. In this case, you won’t be required to provide photos of the vehicle since the representative can look at the car during your visit.

Title Loans Online

You can also apply for title loans online through financial companies that offer these types of short-term loans. In most cases, you must first complete an online loan application and answer questions about your vehicle before you’re provided with specific loan terms, including the amount, interest rate, and duration. You may be asked to upload photos of the vehicle and car title, as well as your government-issued identification.

If you’re approved for a title loan and you agree to the loan terms, the loan amount can usually be deposited directly into your bank account. Applying for title loans online is appealing to many consumers because it’s a fast and easy way to get your loan money.


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This post was updated December 3, 2019. It was originally published December 3, 2019.