What Are Car Title Loans and How Do They Work?

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If you’re tight on cash and run into an unexpected expense or an emergency, you may be considering getting one of the various types of loans out there to cover the cost. Especially if your credit is less-than-perfect, something like a car title loan may seem appealing.

In this article, you will learn what car title loans are, how to get one, the pros and cons of these loans, and more.

What Is a Car Title Loan?

Car title loans are typically short-term loans that require that you use your car title as collateral. These loans oftentimes have a higher interest rate than traditional loans. In some cases, the annual percentage rate (APR) for these loans may get into the triple digits. Most of the time, the loans will need to be paid back in 30 days, although the exact terms of the loan can vary.

Today, you can find car title loans both online and in person. It’s a good idea to compare several companies if you are considering one of these loans to see what each can offer. Keep in mind that these loans are not an ideal way of borrowing money and have a range of drawbacks, which will be discussed later. Always be wary when you are borrowing.

How Car Title Loans Work

To get a car title loan, you will have to find a company that offers them and then apply for the loan. Some of the lenders will require that you provide your employment information and some personal details before providing you with the loan.

However, because your vehicle is used as collateral, some lenders do not worry about verifying employment details. They know that if you are not able to pay the loan, they can take your vehicle. This is one of the major downsides of car title loans.

If you get approved for the loan, you turn over the title to your vehicle until the loan has been paid off in its entirety. As mentioned, if you do not pay off the loan, it will belong to the lender, who will take it.

How Much Can You Borrow?

Your creditworthiness does not matter with car title loans. The amount that you can get for your loan will vary based on the value of the vehicle. You can borrow generally borrow between 25% and 50% of the value of your vehicle. The amount could be higher than this in some instances. It varies from lender to lender.

Vehicle Condition and Ownership Matter

Some lenders may also want to verify the condition of the vehicle and take photos of it before they will offer a loan. They do not want to allow people to borrow money on a vehicle that’s on its last legs and that the borrower doesn’t care about.

You typically need to own your vehicle outright or at least have enough equity in the vehicle to make it worth their time. They will not usually consider a vehicle that has a lien on it already because it is difficult to get access to the title.

After Approval

After you have been approved, you will have the money available to you. While the length of time it takes to get approved and to get money varies between lenders, it’s generally quite fast. You should have access to the funds quickly.

The lenders will let you know when the payment is due and how much you will have to pay. This will include the full amount that you borrowed, as well as any other fees from the lender. Make sure you understand exactly how much you are required to pay and when it is due.

Can You Still Drive the Car?

When you have a car title loan, you can still drive your vehicle. The only thing the lender holds will be the title to the car, so you won’t have to worry about finding a way to and from work. You must keep in mind that you have a limited amount of time to pay back that loan, though. If you don’t pay, you could be in a position where your vehicle is taken from you.

What If You Can’t Pay?

If you can’t pay the lender back on time, the lender may let you borrow the money for an additional 30 days. This is known as rolling over the loan. Keep in mind that if you have to do this, you will be subject to another costly monthly fee from the lender.

When you still can’t pay for the loan, the lender may repossess your car. They are then allowed to sell your vehicle and keep the money from the sale to help cover the cost of the money they lent you.

The Pros and Cons of Car Title Loans

It’s always a good idea to be cautious before considering these loans. Car title loans are far from perfect. Here’s a breakdown of some of the pros and cons you will be dealing with.

The Pros of Car Title Loans

There’s no question that car title loans have bad terms, and they are often considered almost as bad as payday loans. However, some people may find that they have no other choice than to make use of one of these loans because they need to have fast access to money.

Oftentimes, the money can be provided to the borrower on the same day they apply. Compare this to traditional personal loans, which can often take days or even weeks before funds will be made available.

Since car title loans do not require the borrower to have good credit, it also means that it’s easier for people to get these loans, as long as they own a car. While unsecured loans such as personal loans and credit cards tend to be better options, not everyone can get those types of loans. Sometimes, car title loans are the only option that people have.

The Cons of Car Title Loans

One of the biggest problems with car title loans is the high interest rates attached to them. This means that you will be paying far more for the loan than you might realize, and this can lead to some serious financial problems for you later.

The interest rates can be 100%, 200%, or more, which means you will have to pay back far more than what you borrowed. While it can provide you with fast cash, it’s a very expensive way to get the money you need.

Of course, you can’t forget that it puts you in jeopardy of losing your vehicle if you can’t pay on time. The high interest rates make it difficult for many people to pay off the loan when it is due, which means you could lose your vehicle. How much more difficult would things get if you no longer had access to transportation?

If the vehicle is sold by the lender and it doesn’t cover the cost of the entire loan—not just what you borrowed, but the interest, as well—you are still responsible for paying that back to the lender. These loans have the potential to leave you in a bad position.

5 Tips to Help You Get a Fair Car Title Loan

If you are at a point where you feel you need to get a car title loan, you will want to do everything you can to ensure that it’s as fair as possible. This can be difficult given the nature of these loans. Here are five tips on how to go about shopping for a car title loan:

Tip #1: Compare Lenders

You should always try to compare several lenders if you have the time. The rates will be about the same, though. Check some reviews to see what others who have used the service have to say.

Tip #2: Know How Much You’re Paying

Always make sure that you ask the company how much you will have to pay in total and when it will be due. Review the terms of the loan and make sure that they are in line with what you were told when you talked to the lender. Sometimes, lenders might boast about a lower APR that’s available and neglect to tell you that you didn’t get that APR.

Tip #3: Double-Check Before Signing

Always double-check the terms in the loan paperwork before signing and make sure that you understand them.

Tip #4: Be Aware of Add-Ons

Pay attention to any other add-ons that the lender might require. They might say that you need to give them a copy of your keys or that you need to have roadside assistance.

Tip #5: Borrow Only What You Can Pay Back

Only borrow money that you know you can repay by the time the loan is due. If you don’t, your car will be taken and you will be left without transportation. Sometimes, it may be better to consider other ways that you could get the money you need.

Other Options for Borrowing Money

Sometimes, if you are late on a bill or have an emergency situation pop up, you start to panic. You look for ways to get the money you need quickly and you might think that getting a car title loan is the only option.

If the reason you need to have fast cash is that you owe money on a bill, rent, etc., don’t just leap to an option like car title loans. There may be other options that are a lot better. Car title loans should be a last resort.

Consider some of the other ways you may have available for getting the money you need. Here are four options:

1. Credit Cards

While everyone knows that overspending on credit cards can be a problem, it’s often better than car title loans because the interest is lower. While it’s not as low as you would find with a personal loan in most cases, it’s not going to head into the triple digits like car title loans.

If you have bad credit and aren’t qualified for traditional credit cards, you may want to consider getting a secured credit card down the line to help you raise your credit score.

2. Bank or Credit Union Loan

Another option is to talk with your bank or credit union about the possibility of getting a loan through them. This can be difficult if you do not have good credit, of course, and it will take longer than getting a car title loan. However, it poses less risk to you.

3. Family or Friends

They say that you shouldn’t borrow money from family or friends because it can cause problems down the road. However, those problems might not be as big as the possibility of losing your vehicle. If people you know have the means and are willing to let you borrow, it could be a good option. Just make sure you pay them back on time.

4. Selling Possessions

You might also want to consider selling off some things that you do not need to make some extra money. Old items that you no longer need, collectibles, etc. can be a way to earn some cash relatively quickly, so you don’t need to borrow.

If you do find that the only choice you have is to get a car title loan, make sure you are careful and that you fully understand what it is you are signing. You do not want to get into further financial problems.


Car title loans are usually not a great first pick when it comes to getting a loan. However, if you go down that route, it’s important to shop around for the best deal and know exactly what the loan terms are.

Be sure to be realistic with your financial situation and make sure you can pay back the money on time. If you do not, you may be facing more interest charges or even lose your vehicle in the process. We would not want that to happen to you, so be sure to proceed cautiously when it comes to car title loans.

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