What Are Title Loans?

Bad credit, unexpected bills, massive amounts of debt, and financial hardship can force people to look for alternative sources of financing outside of traditional bank and credit union loans. Over 2.5 million people borrow money from title loan companies on an annual basis. Title loans are rising in popularity amongst desperate borrowers. Title loans may seem like a good source for emergency funds but they do have their drawbacks/ Let’s take a look at the pros and cons of getting a title loan.

What Are Title Loans?

Title Loan Definition

A title loan is a secured loan where a borrower uses the vehicle title to serve as collateral to borrow cash from a lender. A title loan can be received for a car, truck, or motorcycle. Some lenders allow title loans for a boat, yacht, or jet ski. 

A title loan is also known as a title pawn, title pledge, or pink slip loan.

FAQ About Title Loans

How long is the average title loan and how long does a borrower have to repay a title loan?

A title loan is a short-term loan with the average loan period being 30 days.

Loan terms can run from 15 days to 4 years depending on the lender.

What is the title loan process?

Most title loan companies require the documents listed below from borrowers:

  • Photo Identification (Drivers License)
  • Proof of Residence
  • Proof of Income
  • Completion and Signing of Application
  • Hard Copy of the Title to Vehicle

The lender requires a clear title meaning that the borrower needs to own the car outright. A clear title which is lien free serves as proof that the car is fully paid off.

Some title loan companies will want to see the vehicle in person to inspect it. Other lenders will accept photographs of the vehicle from loan customers. Lenders who accept photographs require pictures of front, back, driver’s side, passenger’s side, and odometer views. The Vehicle Identification Number (VIN) is also required.

The borrower surrenders the title and a set of car keys to the lender in exchange for the loan. The lender places a lien on the car title for the loan amount. The borrower signs the loan agreement and receives cash. The amount of cash received is based on the vehicle’s value and the borrower’s ability to repay the loan.

The whole application process typically takes 15 to 30 minutes.

Once you pay off your vehicle, you will receive your title back.

What is the maximum amount that a borrower can receive from a title loan?

Loan amounts vary with some lenders having maximums of $2,500, $10,000 while others have loan amount up to $50,000.

Loan amounts depend on vehicle year, make and model, mileage, condition and the borrower’s ability to repay the loan.

What are the advantages of a title loan?

No credit check

Since a title loan is a secured loan, your credit score does not matters. Borrowers with bad credit can receive loan financing since the vehicle serves as collateral. 

No bank account needed

Borrowers without checking or savings accounts can receive title loans. 

Loan approval speed

Borrowers can apply online or in person at a store making a title loan easy to get. A title loan can be received in a matter of minutes while other forms of loan financing take longer.

Rebuilds credit 

If paid as agreed, title loans help to improve a borrower’s credit score. Loan repayments are reported to major credit bureaus.

What are the disadvantages of a title loan?

High interest rates

Title loans have interest rates that are similar to payday loan rates of 300% or more. The average title loan charges a 25% interest rate monthly.

Add on fees

Title loan companies often attach add on fees to the loan such as roadside assistance fees, global positioning software fees in the event of breakdown or repossession. 

Potential For repossession

Borrowers who are unable to repay title loans will have to deal with repossession. Repossessed cars are often sold for less than the loan amount leaving the borrower with title loan debt and no transportation.

My Opinion Of Title Loans

I am by no means a fan of title loans. Title loans are an expensive form of debt financing that I do not recommend. Title loan fees generate $3 billion dollars a year for title loan companies. Title loan companies prey upon the working poor with the average borrower having a salary of only $30,000 per year. Title loans and payday loans charge incredibly high interest rates that keep borrowers in a cycle of dependency. Title loan borrowers often have to rollover their loans numerous times which keep borrowers in a cycle of paying interest only and never reducing principal amounts. 

The fact that you can lose your primary source of transportation and still owe the title loan company is a bad deal. Borrowers with bad credit should opt for other loan financing avenues. It’s better to get a bad credit loan which will only ding your credit in the event of default versus getting a title loan which can leave you catching the bus.

Have you ever obtained a title loan? What was your experience?

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