Car title loans: What they are and how they work Advertiser Disclosure Advertiser Disclosure We are an independent, advertising-supported comparison service. Our aim is to assist you make better financial decisions by providing you with interactive financial calculators and tools that provide objective and original content. We also allow you to conduct your own research and compare data for free to help you make sound financial decisions. Bankrate has partnerships with issuers including, but not restricted to, American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Make money The products that appear on this site are from companies that compensate us. This compensation can affect the way and where products appear on this website, for example, for example, the order in which they may be listed within the categories of listing, except where prohibited by law. Our mortgage, home equity and other home loan products. But this compensation does have no impact on the information we provide, or the reviews that you read on this site. We do not cover the vast array of companies or financial deals that might be open to you. Barry Winiker/Getty Images

5 minutes read. Published October 19, 2022

Writer: David McMillin Written by Contributing writer David McMillin is a contributing writer for Bankrate and writes about topics like credit cards, mortgages tax, banking, and travel. David’s mission is to assist readers discover ways to save more and stress less.

Editor: Rhys Subitch The edit was done by Auto loans editor Rhys has been editing and writing for Bankrate since late 2021. They are committed to helping readers gain the confidence to take control of their finances with concise, well-researched and informative information that breaks down otherwise complex topics into manageable bites. The Bankrate promise

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We make sure that everything we publish is objective, accurate and reliable. Our loans reporters and editors concentrate on the points consumers care about the most — the different types of lending options, the best rates, the most reliable lenders, how to repay debt and many more. This means you’ll be able to feel secure when making your decision to invest your money. Integrity of the editing

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Therefore, this compensation may affect the way, location and in what order items appear in listing categories and categories, unless it is prohibited by law. This is the case for our loan products, such as mortgages and home equity and other products for home loans. Other elements, like our own proprietary website rules and whether a product is offered in your region or within your self-selected credit score range may also influence how and where products appear on this website. We strive to provide a wide range offers, Bankrate does not include information about every credit or financial product or service. All loans are risky in the event that they’re not paid on time. But a title loan has a particularly threatening result if you don’t make your payments on time: The lender may take your vehicle. If you are considering obtaining the title loan it’s important to understand the potential drawbacks of using your vehicle as collateral to borrow money. Which are the car-title loans? The car title loan or “pink slip loan,” allows you to take out loans ranging from 25 to 50 percent of the worth of your vehicle in exchange for giving the lender you the title for your car as collateral. These short-term loans typically start at $100 and have repayment terms of 15 to 30 days. Title car loans target those who have had credit problems in the past and need cash quickly. Many lenders have minimal to no credit requirements -Some won’t even . The application process is typically simple, and if approved, you can expect to receive funds in as little as 24 hours later — often, even earlier. Access to loans is easy, which means these loan products are accompanied by high rate of interest. Certain states limit the amount of interest lenders are allowed to charge while others have no restrictions. And in some states, lenders are not permitted to offer the car title loans to consumers. If you are in a state in which car title loans are allowed, you typically need apply for an loan. Certain lenders offer these loans when your car is almost paid off, however it isn’t as prevalent. What is the way that title loans work? Car title loans come in a range of varieties. Some are single-payment loans and the borrower must pay the total amount of the loan plus the interest rate fee within a month or as. The loan is repaid over three or six months, depending of the lender. While the word “car” might be part of the product name, these loans also can be available for motorcycles, boats and recreational vehicles. You can apply either online or in person but you’ll need to visit a physical location to show your vehicle before the lender. Be sure to provide the lender with an unbroken title and a photo ID , when applying for a car title loan. The lender may also want keys. The car remains in your possession until the time of repayment unless you are in default of the loan. To show how these loans work, assume you own a vehicle worth $5,000, and you encounter an emergency and require $1000. A title loan lets you take out a loan against your car so that you can receive the $1000 quickly. Like a mortgage, which makes use of your house as collateral while a title loan uses your vehicle as collateral. In order to get the title of your vehicle back, the loan must be paid back in full, including the steep charges the lender charges for the loan. These fees typically comprise an average monthly finance fee of 25 percent, which translates to an APR of 300 percent. If you take out a $1000 loan it will cost you an additional $250 in interest in the event that the loan is repaid in just 30 days. If you’re not on time with your payments and late penalty charges are determined and imposed, you could end up paying a penalty of $250. loan may cost a small fortune. Certain lenders may also charge processing, origination and document costs, which can drive the costs of borrowing more. There is also the possibility of having to purchase and pay for a roadside service plan for your vehicle. There are downsides to title loans While the process of getting an auto title loan might be straightforward however, it comes with significant costs and risk according to Graciela Aponte-Diaz, director of federal campaigns at the Center for Responsible Lending. “If you can’t pay back the loan at the time it’s due the loan is rolled over to another cycle with more fees,” says Bruce McClary the senior vice president of communication at the National Foundation for Credit Counseling. “It results in a very stressful situation for people who are already struggling to repay. It is the specific definition of the debt cycle.” The main drawback however, is the possibility of losing your vehicle. If you’re unable to pay back the loan the lender could take your car and sell it in order to recover the money. This isn’t common. A study from the found that 20 percent of those who take out title loans have their vehicles confiscated. And, even more alarmingly, “some car title lenders use the GPS device — nicknamed”kill switch”- that can prevent the borrower’s vehicle from beginning, using this practice as a means of collecting a loan or making it easier to seize the car,” Aponte-Diaz adds. With the real danger of losing your main means to travel, it’s easy to understand the way a title loan can be a stressful and stressful experience. Other alternatives to loans With all the serious disadvantages, McClary recommends reaching out to traditional credit unions and banks to find less expensive loans. Also, you could make use of a credit card if you have one in your possession to cover your cash-flow needs. Even in the absence of an account with a bank account, have a lower credit score or have struggled with poor financial decisions in the past, it’s worth investigating every option. “It’s interesting how flexible these traditional lenders are,” McClary says. “There are plenty of credit unions who are prepared to deal with bankless customers.” Apply for personal loan While getting an individual loan can be challenging for those with bad credit, you may have options. Certain online lenders may be qualified to apply for. If you’re a member of a credit cooperative, you can also try communicating your situation to an official at a bank. They may approve you for an loan depending on the quality of your connection and your credit history. It is also possible to ask a friend or relative who has a stable source of income as well as a good credit score to make an application with to increase your approval odds. Look for a payday alternative loan Payday alternative loans are a cheaper alternative to think about. They’re available through some credit unions, however you must be a member to access this loan product. The loan amounts vary between $200 and $2,000 which can be paid over a period of one to twelve months. The application fee is capped at $20 and you’ll only pay 28 percent in interest. This means that payday alternative loans cheaper than title loans and also bad credit personal loans. Use a credit card You can also apply for credit cards if you’re facing a serious financial crisis. It is also possible to draw funds out of your card via the use of a . Be aware that the rate of rate of interest for cash advances tends to be higher than you’ll pay for purchases — up to 30 percent variable. Plus, there’s no grace period, and interest will begin accruing immediately. Expect to pay an ATM fee to withdraw funds. McClary rarely advises adding to credit card debt but says it’s a better option as opposed to the traditional title loan, as you’re likely to pay far less interest than you would with an auto title loan. The bottom line: Car title loans are a great alternative to get cash fast. Still, the costs are generally not worth the risk, and you could end up in a far worse position than you were prior to taking your loan. Think about alternatives that are more affordable, like credit card, loan for personal use, loan as well as a payday alternative loan, before settling on a car title loan. But if you’ve exhausted all your options and are forced to use the title of your car loan make sure you review the fine print. Title lenders must show you loan terms in writing before signing. Federal law requires that they are transparent and honest about the total cost for the loan.


Written by a contributing writer David McMillin is a contributing writer for Bankrate and covers topics such as mortgages, credit cards banking, taxes, and travel. David’s goal is to help readers discover ways to save more and stress less.

Edited by Rhys Subitch Editor: Rhys Subitch Auto loans Editor Rhys has been writing and editing for Bankrate since late 2021. They are passionate about helping readers gain the confidence to manage their finances by providing concise, well-studied facts that break down complex topics into manageable bites.

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