An Easy Guide To Understanding Title Loans

Category: How-tos

We all fall into situations where we are just a little short on cash. Sometimes you want to buy something for a particular occasion but you are just shy of some cash to make the purchase or sometimes you just need a little assistance at the end of the month to make ends meet or recover unexpected expenses. It is not uncommon for people to be living paycheck to paycheck these days. Especially people who are working a job or have a certain amount of money that they earn from an investment on a monthly basis; these people often have very acutely planned expenses. They rely very heavily on the money to come in at that date that they expect it to because they have a range of expenses that they have lined up accordingly.

Lenders are aware of this problem and that is why they have developed the title loan to help people out. In this guide, we’ll go through all the things that you need to know to make the most of a title loan. Even if you don’t have a need for it right away it’s always good to know your options and understand the implications of engaging this type of service.

What Is A Title Loan?

Essentially these are very short-term loans that are usually also very small value loans and they are meant to aid people in getting through a slim month or simply help with financing when they fall short. These are secured forms of loans meaning that you will need to provide some kind of collateral to be eligible for this loan. However, that is pretty much all you need, even people with a poor credit score have no problems in securing a loan.

The thing to note is that the value of your loan does depend on the amount that a lender is willing to give out, for instance, the value of your car, what percentage of the collateral you can get in the form of a loan, and even where you live. These are all factors that a lender will consider before giving you a loan.

The Workings Of A Title Loan

Title loans are considered to be subprime forms of loans. This is because they target people who have a weak financial base and they can be quite challenging for the end-user to manage. Title loans are notorious for the incredibly high markup at which they are sold. In fact, they have earned such a bad reputation that they are not permitted in many states. Today, there are less than a dozen states that still allow lenders to use the title loan framework to provide their services. Title loans have been the subject of a lot of debate as some argue that this is a way of exploiting those who have no other option. Since lenders are not willing to provide financial assistance to people with poor credit ratings, they are left with no choice but to go for a title loan. The title loan providers use this opportunity to charge extremely high-interest rates and increase the burden on the client by requiring a collateral asset. Due to the high rates, this can make it nearly impossible for the client to pay back the loan and this sends them spiraling through the cycle of getting new loans to pay back older ones and they enter an endless loop of interest and debt.

The other problem with title loans is the way that they are marketed. In fact, even with other forms of short-term loans, the lender will often advertise the loan with a low-interest rate without mentioning how long the payback period is and the interest applies. This is known as annualization and it is a standard practice that when a loan is issued, it is marketed with the annual rate. Not mentioning the annual interest rate can completely change the amount of money that needs to be paid back. The result is that the interest on the loan often exceeds the loan amount itself. However, the client doesn’t realize this until it is time to pay back the loan.

Some lenders will also require that the asset that is being pledged, usually a vehicle, is in the name of the person taking the loan and that the car should be completely owned by them. Other lenders are a bit more relaxed and even if there are a few payments left on the vehicle, they will still accept it as collateral. Then the lender will physically inspect the vehicle and have someone evaluate the vehicle at the current market price. Based on this evaluation you will be able to get financing.

Usually, lenders will give a loan that is between 25% and 50% of the cars evaluated market price. Also, they will have a monthly interest payment that can be anywhere above 20%. This means that the annual percentage rate of the loan can be in the triple digits. Even for a loan of just a thousand dollars, this can mean a lot of money by the end of the year. If the payment is not made the client loses their car. Applications for these loans can be made online or in-person and it is usually a quick procedure.

The Cost Of A Title Loan

If you understand the way that a title loan works and you are confident that you can meet the payment schedule, it can be a great way to get a loan. Especially if you don’t have a high credit score, then this is likely going to be the only option you have. The main costs that you need to look out for are the rate of interest, the finance charge, and the cost of the title certification; suggests that you go for a loan that offers a higher financing cost with a lower interest rate. This way, even if you aren’t able to meet the deadline, the amount that you owe to the lender will not be affected too much. The financing cost is independent of the loan itself and does not rise over time, it is a one-time cost like a service fee for the loan. Also, try and stay within the time frame as moving it to another month will mean that you need to pay more for the processing and there will be more paperwork involved in getting the loan to roll over.

Pros And Cons For Title Loans

The following are the advantages and disadvantages to note when considering title loans.


Easy Access – anyone and everyone can apply for this loan. If you are of legal age, then no matter your income, religion, location, or career, nothing can prevent you from applying for the  loan. As long as you provide collateral, you are eligible.

No Credit Check – the big selling point for title loans is that they don’t need your credit score. Unlike traditional loans where the value of the loan and the cost of the loan is dependent on your credit score, for title loans it doesn’t matter. Whether you have a bad credit score or you have no score at all, it makes no difference.

Quick Access – generally you have to wait a few days or even a few weeks to get the money from a traditional loan. With title loans, you can get the money the minute the application is complete and the car inspection is done. In some cases, this can be a matter of minutes.

Keep The Asset – even though you are using the car as collateral, you still get to keep the asset and use it. Some lenders might install a GPS on the vehicle just for their own safety but every title loan provider will let you keep the vehicle. This way you don’t have to say goodbye to your car and it is also serving as an anchor for your loan.


Expensive  – the fact that the interest rate is so high means you could easily be paying twice or thrice or four times the value of the loan in the form of interest. This is what creates the loop that people are not able to get out of. Even for a small payment of $400, with a standard interest rate, you might be paying over $1000 just in interest payments.

Limited Payback Options – unlike traditional loans you don’t get to discuss the payback options. Lenders will have a fixed time frame within which you need to pay. This is usually 14 days or thirty days and even if you have a genuine problem, you will be paying extra interest if you go over even by a single day.

Can Be A Debt Cycle – title loans are one of the biggest reasons why people lose possessions of their vehicles. In fact, the majority of people that are in a debt cycle have started off with a title loan.

Potential Of Losing Your Asset – in the case that you can’t pay, the lender has all the right to sell the vehicle and recover the money. What’s worse is that the loan is often double or four times the price of the vehicle so the lender not only recovers their money but also makes a very good profit from the sale. On the other hand, the client loses the vehicle completely. If you can’t meet the payment and the lender won’t let it roll over, you will most likely lose that vehicle.

How To Get A Title Loan

All you will need is a vehicle that meets the criteria and all the necessary documents such as the registration, the insurance information, and your own information to create an application. Also, some lenders may have a maximum age limit on the vehicle. For instance, they might not accept cars that are more than 50 years old. Some lenders will have a professional evaluation service that they will want to use. Some will have their own payment routine that you will have to follow. There is no hard and fast rule about how you can get a loan. As long as you meet the requirements, you will find someone who is willing to finance it. It is recommended that you meet the loan provider in person though if you are applying for a loan in a different state; then you can easily continue the rest online.

Things To Look For In A Title Loan

When seeking a title loan or any kind of loan you want to make sure that you fully understand the procedures and the details of the contract. It is when people just want the money and don’t consider the consequences that you start to get yourself in trouble. Ideally, you want a loan that has a low rate of interest. The lower it is, the better it will be for you because the less you will have to pay back.

Secondly, you want to make sure that the lender is a reliable professional that you can count on. Sometimes the smaller lenders will resort to dirty tactics. If possible you want to get the longest payback period that you can without raising your interest rate or decreasing the value of the loan.

If you have served time in the military, then you can look into some specialized options. There are a few lenders who provide extra special rates for people from the armed forces. Also, military personnel are protected from some of the things in title loans; for instance, they cannot be given additional legal notices. Another great benefit for military personnel is that for loans that exceed a period of 181 days, there is a maximum ARP that they can be charged. Similarly, there are a few other regulations that restrict the abilities of the lender and give some more privileges to the military personnel that are looking to secure a loan. Some of these regulations will vary from state to state but they are all in favor of the person taking the loan.

It’s also important to note that title loans have no impact on your credit score. That means that if you are late on a title loan or you have some kind of problem with repayment, it will not negatively impact your credit score. However, by the same token, if you are on time, that too will not improve your credit score.

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