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 smarter financial decisions by offering you interactive tools and financial calculators as well as publishing unique and impartial content. This allows users to conduct research and compare information at no cost - so that you can 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 offers that appear on this site are from companies that pay 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, 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 publish, or the reviews you read on this site. We do not include the universe of companies or financial deals that might be open to you. Barry Winiker/Getty Images
5 minutes read. published on October 19, 2022.
Written by David McMillin Written by Contributing writer David McMillin is a contributing writer for Bankrate and covers topics like mortgages, credit cards, banking, taxes and travel. David's goal is to help readers discover ways to save more and stress less.
Written by Rhys Subitch Editor: Rhys Subitch Auto loans editor Rhys has been writing and editing for Bankrate since the end of 2021. They are committed to helping readers gain the confidence to manage their finances by providing precise, well-studied information that breaks down otherwise complex topics into manageable bites. The Bankrate guarantee
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We are compensated in exchange for the placement of sponsored products and, services, or through you clicking specific links on our website. This compensation could influence the manner, place and when products are listed in the event that they are not permitted by law. This is the case for our credit, mortgage and other products for home loans. Other factors, such as our own website rules and whether or not a product is available in your region or within your self-selected credit score range can also impact how and where products appear on this website. Although we try to offer a wide range offers, Bankrate does not include details about each credit or financial product or service. All loans are risky when they aren't paid back promptly. But a title loan has a particularly threatening result if you don't meet your payment obligations: The lender may take your vehicle. Before you consider getting a title loan it's important to be aware of the possible negatives of using your vehicle as collateral to borrow money. Which are the car-title loans? A car title loan also known as a "pink slip loan," allows you to take out loans ranging from 25 to 50 percent of the value of your car in exchange to give the lender the title to your car as collateral. These short-term loans generally start at $100 and have repayment terms of between 15 and 30 days. Title car loans cater to consumers who have had credit problems in the past and need cash quickly. The majority of lenders have low or no requirements for credit -- some won't even . The application process is typically simple, and if accepted, you could anticipate receiving funds in as little as 24 hours later -- sometimes even sooner. Access to loans is easy, which implies that these loan products have high rate of interest. Certain states limit the amount of the interest rates 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 the state that allows automobile title loans are permitted, you typically need get a loan. Some lenders provide these loans for vehicles that are nearly paid off, but it isn't as prevalent. What is the way that titles loans work? Car title loans come in a couple of various types. Some are single-payment loans and the borrower is required to pay for the full value of the loan and the interest fee within a month , or that is. The loan is repaid over three or six months, based of the lender. While the word "car" might be part of the product name but the loans also can be available for boats, motorcycles and other recreational vehicles. You can apply online or in person, but you'll need to visit the location in person to show your car before the lender. Be sure to present the lender with an unbroken title and a photo ID , when applying for a title loan. The lender may also require a set of keys. The vehicle will be yours throughout the loan period, until you fail to pay the loan. To demonstrate how these loans operate, let's say you own a car valued at $5,000 and you are in a situation of emergency situation and require $1,000. A title loan allows you to use your vehicle as collateral so you can get the $1,000 quickly. Similar to a mortgage that uses your home as collateral while a title loan uses your vehicle as collateral. To get the title to your car back, the loan must be paid back in entirety, not including the high costs the lender charges for providing the cash. The fees usually include an average monthly finance charge of 25 percent. This amounts to an annual percentage rate that is 300 percent. If you take out a $1000 loan it will cost you another $250 of interest, even if the loan is paid back within 30 days. If you're not on time in your payment and penalties for late payments are determined, your loan can cost a small fortune. Some lenders will also charge origination, processing and document charges, driving the costs of borrowing more. There is also the possibility of having to obtain and pay for a roadside service plan for your vehicle. There are downsides to title loans While getting an auto title loan might be straightforward, the convenience comes with significant costs and risk, according to Graciela Aponte-Diaz, director of federal campaigns at the Center for Responsible Lending. "If you are unable to pay back the loan when it's due the loan is rolled over to another cycle, which incurs more costs," says Bruce McClary who is the senior vice-president of communications at the National Foundation for Credit Counseling. "It can create a difficult situation for people who are already struggling to pay. It is the specific definition of the cycle of debt." The biggest downside however, is the potential to lose your car. If you are unable to repay the loan the lender may take your car and sell it to recoup the money. And this isn't all that uncommon. A study from the found that 20 percent of the people who take out title loans have their vehicles seized. In addition, "some car title lenders install the GPS device, dubbed a 'kill switch' -which can stop the borrower's vehicle from beginning by using this method as a means of collecting the loan or making it easier to seize the vehicle," Aponte-Diaz adds. Given the very real risk of losing your main means to travel, it's easy to understand the way an auto title loan can be a stressful and stressful experience. Other alternatives to loans With all the negatives, McClary recommends reaching out to traditional banks and credit unions to find less expensive lending options. You can also utilize a credit card when you have one available to cover your cash-flow requirements. Even if you don't have a bank account, have a low credit score, or have had financial issues 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 willing to work with non-banked customers." Apply for personal loan Even though getting personal loan isn't easy for those with bad credit, you may have choices. There are online lenders that you may be eligible to apply for. If you're a member of a credit union You can also try telling your story to an official at a bank. They may approve you for an loan in light of the strength of your relationship as well as your banking history. You can also solicit a family member or friend who has a stable source of income as well as a good credit rating to apply with you , thereby increasing your approval odds. Consider a payday alternative loan Payday alternative loans are a different, less expensive option to look into. They're offered through certain credit unions, however you need to be a member of the institution to avail this loan product. Loan amounts range from $200 to $2,000, that are payable over a period of between one and 12 months. The application fee is capped at $20 and you'll only pay 28 percent of interest. This is what makes 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 emergency. Or you can pull funds from your credit card using an . Be aware that the rate of interest rate on cash advances is usually greater than the rate you'll pay for purchases -- up to 30 percent variable. There's also no grace period. Interest starts accruing as soon as you make the purchase. You'll have to pay an ATM fee to withdraw your funds. McClary does not recommend adding to credit card debt but suggests it's a better choice as opposed to the traditional title loan since you'll likely pay lower interest rates than with a car title loan. The bottom line Car title loans are an excellent alternative to get cash fast. Still, the costs are typically too high for the risks, and you could be in a worse situation than before taking out the loan. Look at alternatives that are less expensive for a credit card or personal loan as well as a payday alternative loan prior to settling on a title car loan. However, if you've exhausted all your alternatives and you have to take the title of your car loan, be sure to be sure to read the fine terms. Title lenders need to present you with loan the terms in writing prior to signing, and federal law requires them to be transparent and upfront about the price that they will charge for the loan.
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Written by a contributing writer David McMillin is a contributing writer for Bankrate and covers topics like 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 Edited by Auto loans Editor Rhys has been editing and writing for Bankrate from late 2021. They are enthusiastic about helping readers gain confidence to take control of their finances with clear, well-researched information that breaks down complicated subjects into bite-sized pieces.
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