How Do Title Loans Work?

A vehicle title loan is a short term loan that uses your vehicle title as collateral. You hand over your title to the lender, and in return, you receive a loan for a limited period of time. The typical duration is 30 days. Title loans have a number of advantages: they don’t require a credit check, the application often takes minutes rather than weeks, and you retain control of your vehicle during the loan period.

To be eligible for a car title loan, you need sufficient equity on your car to cover the loan. Some lenders stipulate that you must own your vehicle completely, with no outstanding loans or repayments. Others merely require that you have a certain amount of equity — that is, you have made enough payments on your car to ensure that the loan can be covered.

How Much Can You Borrow with a Title Loan?

The amount you can borrow will depend on the value of the vehicle and your income. Typically, you can borrow 25 to 50 percent of the total value. Some states may impose limits too. Average loan amounts are in the region of $100 to $5,500. Some lenders allow you to borrow much more than this — upwards of $10,000.

What Happens When You Take Out a Title Loan?

After your loan is approved and granted, you’ll need to keep up repayments. Loan terms are usually around 30 days but may be as little as two weeks and as much as a year. During this time, you will retain possession of your car and can drive it as usual. Many lenders will attach a GPS tracker so that they can find your vehicle if they decide to repossess it. They may also retain a copy of your keys. Should you default on your loan, the lender can take possession of your car.

Title Loan Alternatives

A title loan can be an expensive option and may cause you to lose your vehicle if you can’t keep up payments. Here are some possible options:

  • Contact your creditors and ask for an extension on loan repayments. If they understand that your situation is temporary, they may be willing to work with you.
  • Use a credit card to make some payments. While the interest is a serious consideration, it’s generally less expensive than a title loan.
  • Negotiate and consolidate debts. Credit card companies are often willing to arrange a settlement, and loan payments can be restructured.
  • Use your tax refund if you receive one. File as soon as possible — you may only have to wait 21 days or less for a refund.
  • Ask friends and family to extend you a short-term loan. As uncomfortable as this is, it’s preferable to high-interest title loans and the possible loss of your car.
  • Apply for a small unsecured personal loan from a conventional lender. For relatively small sums, this is often a good option with lower interest.

A title loan can be enticing if you find yourself in temporary financial difficulties. It’s important to consider all of your alternatives before you accept the risks.

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