Car title loans: What they are and how they work Advertiser Disclosure Advertiser Disclosure We are an independent, advertising-supported comparison service. Our goal is to help you make better financial decisions by providing you with interactive financial calculators and tools that provide objective and original content. This allows you to conduct your own research and compare data for free to help you make informed financial decisions. Bankrate has agreements with issuers including, but not limited to, American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Earn money The products that appear on this website are provided by companies that compensate us. This compensation can affect the way and where products appear on this website, for example for instance, the sequence in which they be displayed within the listing categories in the event that they are not permitted by law. This applies to our mortgage or home equity products, as well as other home lending products. This compensation, however, does have no impact on the information we provide, or the reviews you read on this site. We do not include the vast array of companies or financial deals that might be accessible to you. Barry Winiker/Getty Images
5 min read Published on 19 October, 2022.
David McMillin wrote the article. David McMillin Written by Contributing writer David McMillin is a contributing writer for Bankrate and writes about topics such as credit cards, mortgages tax, banking, and travel. David’s aim is to help readers understand how 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 from late 2021. They are committed to helping readers gain the confidence to take control of their finances through providing precise, well-studied facts that break down complex subjects into digestible pieces. The Bankrate promises
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We receive compensation for the placement of sponsored products and services, or through you clicking certain hyperlinks on our website. This compensation could affect the way, location and in what order products appear within listing categories, except where prohibited by law for our mortgage, home equity and other home loan products. Other factors, like our own website rules and whether or not a 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 site. Although we try to offer an array of offers, Bankrate does not include details about every credit or financial product or service. Every loans have risks in the event that they’re not paid in time. But a title loan comes with a particular risky outcome if you fail make your payments on time and the lender could take your car. Before you decide to take out an auto title loan, it’s vital to know the potential drawbacks of using your vehicle as collateral for borrowing money. How do you define car title loans? Car title loan, or “pink slip loan,” allows you to get a loan of anywhere between 25 percent to 50 percent of the value of your car in exchange to give the lender their title of your vehicle as collateral. These short-term loans generally start at $100, with repayment times of between 15 and 30 days. Title car loans target those with past credit challenges who require cash fast. Most lenders have little or no requirements for credit -and some don’t have any . The application process is typically simple, and if approved, you can expect to receive funds in as little as 24 hours later, in some cases, it’s even faster. Access to loans is easy, which means these loan products have high rate of interest. Certain states restrict the amount of interest lenders can charge but others do not have any restrictions. In some states, lenders are prohibited from offering car title loans to customers. If you live in one of the states where the use of car titles loans are permitted, you are likely to need get a loan. Some lenders provide these loans when your car is nearly paid off, but this is less common. What is the way that titles loans work? Car title loans come in a couple of various types. There are loans that are one-payment loans which means that the borrower must pay the total amount of the loan plus the interest rate fee within a month or that is. The loan is repaid over three or six months, based on the lender. While the word “car” could be included in the title of the product however, these loans also can be offered for boats, motorcycles and other recreational vehicles. You can apply on the internet or in person, however, you’ll have to go to an actual location to present your vehicle in front of the lender. Be sure to present the lender with clear title and a photo ID , when applying for a car title loan. The lender might also require keys. The car will be yours throughout the loan period, unless you default on the loan. To illustrate how these loans work, assume you own a car valued at $5,000 and you encounter 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 uses your home as collateral, a title loan makes use of your vehicle as collateral. To get the title to your vehicle back, the loan is to be paid in full, including the steep charges the lender charges for the money. These fees typically comprise an average monthly finance charge of 25 percent. This translates to an APR that is 300 percent. For a $1,000 loan it will cost you the additional amount of $250 for interest, even when the loan is paid back within 30 days. If you’re not on time with your payments and late penalty charges are assessed, the loan can cost quite a bit. 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 insurance plan to cover roadside repairs for your vehicle. Downsides to title loans While the process of getting an auto title loan might be straightforward however, it comes with significant costs and risk as per Graciela Aponte Diaz, director of federal campaigns at the Center for Responsible Lending. “If you are unable to pay back the loan in time the loan is rolled over to another cycle, which incurs more costs,” says Bruce McClary the senior vice president of communication at the National Foundation for Credit Counseling. “It can create a difficult circumstance for those already struggling to pay back. This is the exact definition of the cycle of debt.” The biggest downside, though, is the risk of losing your car. If you can’t repay the loan, the lender may take your car and sell it to recoup their money. It’s not all that common. A study by the discovered that 20% of people who get title loans have their vehicles seized. In addition, “some car title lenders use the GPS device — nicknamed a ‘kill switch’ -which could stop the borrower’s car from starting and use this to collect a debt or making it easier to seize the car,” Aponte-Diaz adds. Given the very real risk of losing your main means to travel, it’s easy to see how a title loan could be a stressful and stressful experience. Solutions to the title loans With such serious downsides, McClary recommends reaching out to traditional banks and credit unions to identify less costly loans. Also, you could utilize a credit card when you have one in your possession for your immediate cash needs. Even in the absence of an existing bank account, have a poor credit score, or had financial issues before, you should consider every option. “It’s interesting how flexible these traditional lenders can be,” McClary says. “There are many credit unions that are willing to work with unbanked customers.” Apply for a personal loan Even though getting an individual loan could be difficult for those with bad credit, you may have choices. There are online lenders that you may be eligible for. If you’re a member of a credit union, you could also consider telling your story to the banker. They may be able to approve an loan depending on the quality of your relationship and good credit background. You can also ask a friend or relative who has a stable source of income and strong credit score to make an application with to increase your approval odds. Consider a payday alternative loan Payday alternative loans are another less costly option to consider. They’re offered through certain credit unions, however you have to be a member of the institution to avail these loan product. The loan amounts vary between $200 and $2,000 that are payable over a period of between one and 12 months. The fee for application is set at $20, and you’ll only pay 28 percent of interest. This means that payday alternative loans cheaper than title loans and also bad credit personal loans. Utilize a credit card can also use a credit card if you’re facing a serious financial need. You can also take money out of your card using an . Be aware that the rate of interest rate for cash advances tends to be higher than you’ll pay for purchases — anywhere from a to 30 percent variable. Additionally, there is no grace period and interest will start accruing right away. Be prepared you to incur an ATM fee to withdraw funds. McClary is not a fan of adding credit card debt however he believes it’s a better choice over the traditional title loan since you’re likely to pay far lower interest rates than you would for the car title loan. The bottom line Car title loans are a convenient alternative to get cash fast. However, the cost is generally far from the danger and you may end up in a far more dire situation than before you took your loan. Consider more affordable alternatives, like credit cards or loan for personal use, loan and payday alternative loan, before settling on a title car loan. However, if you’ve exhausted your alternatives and you have to take the title of your car loan ensure you review the fine details. Title lenders need to present you with loan conditions in writing prior to signing. Federal law requires that they be transparent and honest about the price that they will charge 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 goal is to help readers understand how to save money and also stress less.
Written by Rhys Subitch Editor: Rhys Subitch Auto loans Editor Rhys has been writing and editing for Bankrate from late 2021. They are committed to helping readers gain confidence to control their finances by providing concise, well-studied facts that break down otherwise complicated topics into digestible pieces.
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