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 choices 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 information at no cost to help you make sound financial decisions. Bankrate has agreements with issuers, including but not restricted to, American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Make Money The offers that appear on this website are provided by companies who pay us. This compensation could affect how and when products are featured on this site, including the sequence in which they appear within the listing categories, except where prohibited by law. Our mortgage or home equity products, as well as other home lending products. However, this compensation will affect the information we provide, or the reviews that you see on this site. We do not contain the universe of companies or financial deals that might be open to you. Barry Winiker/Getty Images
5 min read Published October 19, 2022
Writer: David McMillin Written by Contributing writer David McMillin is a contributing writer for Bankrate and covers topics like mortgages, credit cards tax, banking, and travel. David’s mission is to assist readers discover ways to save money and worry less.
Editor: Rhys Subitch The edit was done by Auto loans Editor Rhys has been writing and editing for Bankrate since late 2021. They are passionate about helping readers gain confidence to control their finances by providing concise, well-researched and informative facts that break down complicated topics into bite-sized pieces. The Bankrate guarantee
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We receive compensation for the placement of sponsored products and services or by you clicking on certain links posted on our website. Therefore, this compensation may affect the way, location and when products appear in listing categories and categories, unless it is prohibited by law. We also offer loan products, such as mortgages and home equity, and other products for home loans. Other elements, like our own website rules and whether the product is offered in your area or at your self-selected credit score range can also impact the way and place products are listed on this website. We strive to provide the most diverse selection of products, Bankrate does not include specific information on every financial or credit product or service. All loans are risky when they aren’t paid back in time. However, a car title loan comes with a particular risky result if you don’t pay your obligations on time: The lender may take your vehicle. Before you consider getting an auto title loan it is essential to understand the potential negatives of using your vehicle as collateral for borrowing money. Which are the car-title loans? A car title loan or “pink slip loan,” allows you to get a loan of anywhere between 25 percent to 50 % of the value of your vehicle in exchange in exchange for giving the lender you the title for your vehicle to use as collateral. These short-term loans generally start at $100 and have repayment terms of between 15 and 30 days. Car title loans cater to consumers with past credit challenges who need cash quickly. The majority of lenders have low or no requirements for credit — some won’t even . The application process is typically straightforward, and, if it is approved, you can anticipate receiving funds within 24 hours later — in some cases, it’s even faster. Access to loans is easy, which means that these loan products come with steep rate of interest. Certain states limit the amount of interest lenders are allowed to charge however, others have no limitations. In some states, lenders are not permitted to offer auto title loans to consumers. If you reside in a state in which car title loans are allowed, then you are likely to need apply for a loan. Some lenders provide these loans if your vehicle is nearly paid off, but it isn’t as prevalent. What is the way that title loans operate? Title car loans come in a range of varieties. Certain are single-payment loans, meaning the borrower is required to pay for the full sum of the loan together with the interest fee within the month or that is. be paid back over 3 or 6 months, depending of the lender. While the term “car” may be in the name of the product but these loans are also available for boats, motorcycles and other recreational vehicles. You can apply either online or in person but you’ll need an actual location to present your vehicle to the lender. Be sure to provide the lender with clear title as well as a photo ID when applying for a car title loan. The lender might also require a set of keys. The car will remain in your possession until the time of repayment unless you default on the loan. To illustrate how these loans work, assume you own a car valued at $5,000 and are in a situation of emergency and need $1,000. A title loan allows you to borrow against your vehicle so you can access the money quickly. Just as a mortgage makes use of your house as collateral, a title loan uses your vehicle as collateral. In order to get the title of your car back the loan must be paid in entirety, not including the high charges the lender charges to provide the money. These fees typically comprise an average monthly finance fee of 25 percent. This translates to an APR that is 300 percent. If you take out a $1000 loan that you take out, you’ll be charged another $250 of interest, even in the event that the loan is paid back in only 30 days. If you’re not on time with your payments and late payment penalties are applied, the loan could cost you a significant sum. Some lenders also charge processing, origination and document costs, which can drive the borrowing costs up even higher. You may also be required to obtain and pay for an emergency roadside assistance plan for your vehicle. There are downsides to title loans While getting a title loan could be simple, the convenience comes with serious costs and risks, according to Graciela Aponte Diaz, director of federal campaigns at the Center for Responsible Lending. “If you don’t repay the loan at the time it’s due, it’s rolled over into another cycle that has more fees,” says Bruce McClary, senior vice president of communication at the National Foundation for Credit Counseling. “It can create a difficult situation for people who are already struggling to repay. It’s the most precise definition of the debt cycle.” The biggest downside, though, is the potential to lose your car. If you can’t repay the loan the lender may take your car and sell it in order to recover their money. It’s not all that common. A study by the discovered that 20% of people who apply for title loans are able to seize their cars. Even worse, “some car title lenders install an GPS device, also known as”kill switch”- that can prevent the borrower’s car from starting, using this practice to collect an amount of debt or making it more easy to seize the car,” Aponte-Diaz adds. Given the very real risk of losing your main means for transportation, it’s easy to see how the process of getting a title loan can be a stressful and stressful experience. Solutions to the title loans With such serious downsides, McClary recommends reaching out to traditional credit unions and banks to find less expensive loans. You can also utilize a credit card when you have one for your immediate cash needs. Even even if you don’t have an existing bank account, have a lower credit score or have been a victim of poor financial decisions previously, it’s worth investigating all your alternatives. “It’s amazing how flexible these traditional lenders are,” McClary says. “There are plenty of credit unions willing to work with bankless customers.” Apply for an individual loan While getting a personal loan isn’t easy if you have bad credit, you may have options. Certain online lenders may be qualified to apply for. If you’re a credit union member, you can also try communicating your situation to the banker. They may be able to approve a loan based on the strength of your relationship and good financial record. You can also solicit a family member or friend who has a stable source of income as well as a good credit score to make an application with you , thereby increasing the odds of getting approved. Look for a payday alternative loan Payday alternative loans are another less costly alternative to think about. They’re available through some credit unions, but you must be a member of the institution to avail the loan product. Loan amounts range from $200 to $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 as well as some bad credit personal loans. Make use of a credit card can also apply for a credit card if you have a dire financial crisis. Or you can draw funds from your credit card through an . Be aware that the interest rate for cash advances is usually higher than you’ll pay for purchases — anywhere from a to 30 percent for variable. There’s also no grace period and interest will begin accruing immediately. You’ll have that you’ll have to cover an ATM fee to withdraw your funds. McClary does not recommend adding to credit card debt but says it’s a better option over an auto title loan since you’re likely to pay far less in interest than you would for the car title loan. The bottom line: Car title loans are an excellent alternative to get cash fast. But, the price is usually too high for the risks and you may be in a worse position than you were prior to taking out the loan. Think about alternatives that are more affordable for credit cards, loan for personal use, loan or payday alternative loan, before settling on a title car loan. But if you’ve exhausted your options and are forced to use the car title loan, be sure to be sure to read the fine print. Title lenders need to present you with loan conditions in writing prior to signing, and federal law requires that they are transparent and honest about the total amount for the loan.
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Written by Contributing writer David McMillin is a contributing writer for Bankrate and covers topics like credit cards, mortgages tax, banking, and travel. David’s mission is to assist readers discover ways to save money and also stress less.
Written by Rhys Subitch The edit was done by Auto loans Editor Rhys has been writing and editing for Bankrate since the end of 2021. They are committed to helping readers gain confidence to take control of their finances with concise, well-studied details that cut complex topics into manageable bites.
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