Car title loans can be confusing and shopping for one can be an intimidating process. This is especially true if you are new to car title loans and have never had one. The conflicting information on the Internet, some published by lenders, others published by competitors to lenders, certainly doesn’t make things easier. Additionally, like many other loans, some lenders tend to make them more complicated than they really are.
Understanding how car title loans work can make the process of getting one much easier. This is especially true is you are apprehensive about the loan the begin with. Given the amount of inaccurate material on the Internet today, we thought is was a good idea to publish the guide on how car title loans work. In this article we go over the full details related to how car title loans work, including both single payment loans and monthly term loans.
We highly recommend to anyone considering a title loan spend some time learning about how they work and how interest is charged before signing an agreement. The consequences of defaulting on a title loan can be repossession. Some lenders are more likely to repossess the vehicle than others; one of the many reasons choosing your lender is very important. Additionally, some title loans have very high rates making repayment extremely difficult. It is worth a few minutes of your time to learn how they work and how to get the best deal.
Title loans are also known as auto title loans, pink slip loans, and car title pawns. They are an easy way to get fast cash using your vehicle title. Understanding how title loans work will help ensure you don’t get stuck with a loan you don’t understand and cannot get out of. To learn how title loans work, we first need to understand what a title loan is.
What is a Title Loan?
A car title loan is a way of getting fast cash using the equity in your vehicle as collateral. The fund can be used for unplanned expenses, emergencies, medical bills, and any other urgent need. Title loans, and more importantly, certain title lenders, often have a negative stigma attached to them. Generally, negative stigmas don’t come out of thin air and certain lenders have earned their poor reputation through the way they treat their customers. Particularly, how much they charge their customers.
There are plenty of articles detailing why title loans are bad and why you should stay away from them at all costs. In some cases, this may be true, and in others, false. It depends on your specific situation. Our view is to provide all of our customers with the information, including costs, to make a determination on whether or not a title loan is the right choice for them.
What these articles do not provide are any real details on how to find the best title loan, or offer a real alternative to title loans. In other words, they provide no useful information for people in a jamb without extensive credit options. Car title loans can be a lifeline for people who have equity in their vehicle but no immediate access to other forms credit. Like any other short term loan, they need to be used only when absolutely necessary and with caution.
Car Title Loans are loans that use your vehicle as collateral. They are secured loans, meaning they are secured by your vehicle. You agree to pledge your vehicle as collateral for the loan and the lender holds your title while you make payments.
Once you make your final payment, the lender returns your title to you. Fail to make a payment, or violate the terms of the loan agreement, and the lender can repossess your vehicle. This is one reason it is very important to choose your lender wisely, we’ll go over that later. Now that we know what a title loan is, we can move on to answer the question “how do car title loans work?”.
How do Car Title Loans Work?
We’ve mentioned that car title loans; also know as auto title loans or title pawns, use you vehicle as collateral to secure the loan. This is at the heart of how car title loans work for two reasons. The first is related to loan approval. Instead of a credit check, the value of your vehicle is used to determine the loan value. This is one of the benefits of a title loan and is good news for those without perfect credit. In most cases, there is no hard inquiry on your credit report when getting a title loan.
The second is related to the consequences of a default. Generally, because the loan is secured by your vehicle, if you default the lender may repossesses your vehicle. We say may because not all lenders will jump at repossession. For Fast Title Lenders, repossession is a last resort and is only done when there is no other option. This is typically after repeated attempts to contact the borrower fail.
This is no different than any other car loan. If you buy a new car, and stop making payments, the car will be repossessed. This is why it is important to communicate with your lender, and also choose your lender wisely. Some lenders are known for repossessing vehicles after a single late payment. Others are more willing to work with borrowers.
Now that we understand the role the vehicle plays in a car title loan, we can move on to the role the borrower plays and who qualifies for a car title loan.
Who Qualifies for a Title Loan?
To qualify for a title loan you will need a vehicle, free and clear vehicle title, drivers license, and insurance. You will also need some way to repay the loan (income from work or other source). What about credit? That is one of the benefits of a car title loan and one of the reasons they are so easy to qualify for, your vehicle is your credit. Just because you qualify for a title loan does not mean it is the right choice.
In our guide on how to get a title loan we detail how to determine whether or not you are a good candidate for a title loan. We also go over how to figure out what you should borrow. If you visit lender’s sites, you’ll find the push is to get you to borrow the maximum amount you qualify for. In fact, you’ll find plenty of “how much cash can I get” forms promising the most cash. Just remember, the higher the loan, the more it will cost in interest to repay.
How do Bad Credit Title Loans work?
As mentioned, there is no credit check with most Title Loans, including loans from Fast Title Lenders. A bad credit title loan works the same way any other title loan works. A bad credit title loan is simply a title loan with a lender that does not check your credit. Your vehicle is your credit. This means you can get a title loan with:
- Bad Credit
- No Credit
- Any Credit
- Or Just Prefer Privacy
Most title lenders use your vehicle to determine how much you can borrow. This makes them one of the easiest loans to qualify for assuming you own your vehicle. To get a car title loan you must first meet the car title loan requirements. These are fairly straightforward and include a lien free title, drivers license, insurance, and proof of income.
How do I get a Title Loan?
Assuming you meet the car title loan requirements, the first step is to find a title lender. As mentioned, this is a critical step when getting a title loan and can make a big difference in how much interest you are charged and how well the process goes. Title lenders charge different rates and fees and are not equal. Many lenders, including most of the large lenders, charge very high rates and do not disclose actual costs until you are ready to sign the loan agreement. Fast Title Lenders charges one of the lowest interest rates in the industry, 8% per month. Make sure to call several lenders and ask how much they charge. Once you find a lender apply for the loan and complete their process. Many lenders today allow you to apply, or begin the application process, online.
Once you complete the online application, the lender will let you know the next steps. For a traditional title loan, this usually involves a short visit to the lender’s location to complete the paperwork. For online title loans, the process is a bit different and includes sending pictures of your vehicle. Some online title loans require you to visit a 3rd party for a vehicle inspection. Online title loans are fairly new, so the process will vary from lender to lender. The terms of the loan agreement will also vary, and interest rates will as well. So it is important to read the agreement in full and make sure you understand every clause. If you don’t understand something, ask the lender to explain it.
For car Title Loans, Location Matters:
Title Loans are regulated at the state level, so where you live will determine how a car title loan is structured. Additionally, not all states allow title loans, so for some they may not be an option. Check the title loan laws in your state. Once you find out whether or not car title loans are available in your state you can figure out if one is right for you.
Title Lenders generally use the Black Book value of your vehicle (sometimes Kelley Blue Book) to determine the value of your vehicle for the loan. They also perform a brief appraisal to confirm the condition. For online title loans, you may be required to take the vehicle to have it inspected by a third party, make sure you check with your lender to find out if that is one of their requirements.
Car title loans are designed to be short term solutions to meet your immediate financial needs. Understanding the associated costs and risks, and especially how title loan interest works, will help you decide if one is right for you. This will also help you prioritize payments to make sure you pay the least amount of interest possible.
How do Title Loans Work – Title Loan Collateral:
When you get a car title loan you are pledging your vehicle as collateral for the loan (not just the vehicle title). You can continue to use and drive the vehicle, just as you would with any other car loan. However, if you default on the loan, the lender may repossess your vehicle to recover their costs. Depending on the state you live in they may also keep any proceeds from the sale of the vehicle. Some states require the lender to return excess proceeds from the sale of your vehicle, although some do not.
Most lenders, including us, do not check borrowers’ credit scores. The vehicle itself is your credit and when combined with your ability to repay the loan is how we determine the loan amount. Not all lenders require proof of income, make sure to check with your lender. We have always required proof of income. It does not do anyone any good to make a loan that cannot be repaid.
What are the Benefits of a Title Loan?
Title loans have several benefits. One of the key benefit is the ability to get cash quickly with no credit check. For many without perfect credit and access to other funding, this is very important. In most cases the process takes about 30 minutes, making them one of the fastest and easiest loans to get.
Additionally, because the vehicle is used to secure the loan, they are very easy to get approved for. Another key benefit of a title loan is the ability to keep driving your vehicle. This allows you to get the funds you need quickly without an interruption in transportation that would result from selling your vehicle.
How do Different Types of Title Loans work?:
Car Title Loans are regulated at the state level and are not available in every state. There are two general types of title loans; single payment loans and monthly term loans. These loans are structured very differently and it is important to understand the differences. Understanding how car title loans work requires understanding the difference between single payment loans and monthly term loans.
Single Payment Title Loans:
Some states have single payment car title loans. These loans work similar to payday loans in that you borrow a fixed amount and repay the entire loan plus a fee at the end of the loan period. They are for a very short period of time, generally 30 days. You must repay the entire loan in one lump sum plus any fees. These types of loans are available in Alabama, Georgia, Idaho, Missouri, Nevada, New Hampshire, and New Mexico.
Single payment loans are generally more difficult to repay and usually have very high interest rates. The reason they are difficult to repay is because you only have a very short period of time to repay the entire loan plus the interest and fees. As an example, if you borrow $1000, you may need to repay $1250 after interest and fees in just 30 days.
Most of these states allow you rollover or extend the loan, which can cause the fees to add up quickly. If we use the $1,000 loan example and at the end of the first 30 days you cannot repay the full $1250, you will need to pay the $250 in interest and fees and “rollover” the loan for another month. This means you will owe $1250 at the end of the second month, this is after paying $250 the first month. If you continue to “rollover” the loan you can see how the interest and fees quickly add up. A $1,000 can end up cost two or three times that amount in interest and fees.
For single payment title loans make sure you can repay the full amount by the due date to avoid getting caught in a cycle of rolling over the loan without reducing the principal.
Monthly Term Loans:
The other type of title loan is a monthly term loan. Some states took notice of the difficulty single payment loans caused borrowers and took action to make the loans easier to repay. Monthly term loans consist of equal monthly payments of principle and interest over a period of usually 4 – 12 months. This means a portion of every payment is applied to the principal of the loan. These loans tend to give the borrower more flexibility by providing more time to repay the full amount. Still, borrowers should make sure they can at least make the minimum payment each month to avoid the consequences of a missed payment. States that offer monthly term loans include Arizona, Illinois, Texas, Virginia, and Wisconsin.
As an example, a $1,000 12 month loan with Fast Title Lenders costs less than $1,600 to repay over the full 12 months with a monthly payment of approximately $138. With no prepayment penalty, you can pay the entire loan off in 30 days for a total cost of $1080. This is significantly less than the single payment loan.
Not all monthly term loans are as cheap as loans from Fast Title Lenders. Some lenders that charge very high rates can have loan repayment amounts of two to three times the amount borrowed; similar to the single payment lenders. Choosing your lender wisely,, and negotiating a lower interest rate is important to getting the best deal on a title loan.
Title Loan Interest Rates:
What are title loan interest rates? There is no simple answer to this question as rates vary from state to state and lender to lender. Some are as high as 300% APR. Title loan interest is usually quoted as a Monthly Rate because the APR is so high. 20% per month sounds OK but it is actually 240% APR.
Make sure to do a bit of research and shop around when looking for a title loan. Interest rates can vary widely from lender to lender and even vary within a lender depending on the size if your loan. Take your time and find a lender with a reasonable rate and a payment plan you can afford.
Fast Title Lenders Title Loans:
Fast Title Lenders provides an alternative to the title lenders charging very high triple digit interest rates. We provide car title loans at 8% per month with no fees; the best title loans. This is a fraction of what the larger lenders charge. We also provide a title loan calculator that provides a real time quote with our interest charges broken out my month and the total for the loan.
How to Save on a Title Loan
The easiest way to save a significant amount on a car title loan is to find a lender that charges a reasonable rate. The difference between lenders, and even within lenders, can be several hundred dollars per month. In our post about shopping for a title loan, we explain a simple tactic that is very easy to learn. Following this one simple tactic can save you thousands on your next title loan.
What if you already have a loan with a very high interest lenders; how do you save on a title loan? Answering the question ‘how do car title loans work’ will provide you with a better understanding of title loans, which should help. Now you know that making early payments, paying more than the minimum, and making additional payments will significantly reduce the amount of interest you are charged. If you want to understand more about how interest is charged, we provide a detailed explanation of title loan interest works with an amortization example.
What is needed for a Car Title Loan?
Car title loan requirements will also vary from lender to lender but have some general requirements in common. To get a title loan you will need, at a minimum, a vehicle with some equity in it, a valid drivers license, and a lien free title. Depending on the lender there may be some additional requirements.
Some lenders require proof of insurance, proof of residence, and proof of income. This is usually all you need for a car title loan. Although we have seen some lenders also require a spare key and may require a GPS device be added to your vehicle.
How much will a Title Loan give you?
A Title Loan is unique in that the amount you can borrow is directly dependent on the vehicle, and more specifically, how much your vehicle is worth. Vehicle values can vary quite a but depending on mileage, condition, and history. For example, a 2010 Mercedes ML550 with 60K miles in excellent condition can be worth almost twice as much as the same vehicle with 150K miles in fair condition.
The wide variation in vehicle values does affect the amount you can borrow from an online lender that offers no inspection title loans. For good reason, without an inspection the lender takes on more risk (the vehicle may be worth less due to condition). Pictures only go so far when appraising a vehicle.
Vehicle history also plays a big role in your vehicle’s value. The number of owners, accidents, salvage history, rental use, and other information available in a vehicle history report will have an affect on your vehicle’s value. This includes whether or not the vehicle has been in an accident, has a salvage history, or an odometer discrepancy.
Use the information to adjust your vehicle value estimate as necessary. This will give you an idea of how much you will be able to borrow. Vehicle value is a key input into the maximum loan amount. Because the vehicle is used to secure the loan, the value is critical.
How do Title Loans Work – Process:
Car title loans are the fastest and easiest way to turn your car’s equity into cash, so the title loan process is fairly straight forward. Fast Title Lenders streamlined our process, cutting out inefficiencies and allowing the entire process to be completed in less than 30 minutes. We specialize in fast title Loans, so optimizing this process was key to our operation.
The process starts with a simple application. Most lenders allow you to fill out at least part of the application online. Once completed, you’ll want to get your paperwork your paperwork ready. We suggest putting everything in a dingle file or folder to make sure the process goes quickly. Then, visit the lender, get your cash, and make your payments. It is that simple. Make sure to do your research first as lenders’ policies regarding fees, interest rates, and payment methods vary.
Find a lender that meets all of your needs and don’t be afraid to say no and walk away if the agreement is not something you can commit to. Don’t get stuck in a very high interest loan that you can’t repay. This will only cause more problems. Also, be prepared to negotiate. If you think the rate is to high, ask for a lower one. Remember, you are the customer, the lender needs you.
When used responsibly title loans can be a source of quick cash for emergencies to get you out of a jamb.
How do car title loans work? Title Loans work differently depending on what state you live but they all are loans using your vehicle as collateral. It is important to do your research first and make sure you are dealing with a reputable title lender. New to title loans? We put together a guide detailing how to get a title loan. Find out your costs before signing the loan agreement and make sure to only borrow what you can afford to repay.