A car title loan is a short-term, high interest loan. Your vehicle title serves as collateral for the loan. So, how do car title loans work and how much cash can you get?
To qualify for a loan you must be listed as the legal owner of the vehicle on the title. The vehicle must also be lien-free. That means your vehicle must not have any outstanding loans and you must own the vehicle outright.
The loan process is very simple and fast. Usually you can get cash within 30 minutes. Sound good? To get the process started, you’ll need to visit a title loan office near you with your vehicle, title, government issued ID and proof of income.
What are the requirements to get a title loan?
- Must be at least 18 Years Old
- Must Own a Car, Truck, SUV or Motorcycle
- Must Have Full-Coverage Insurance
- Title Must Be Lien-Free
- Show Proof of Income (payroll, unemployment, disability, retirement income, etc)
- Government-Issued ID
Proof of Income? Do I Need a Job to Get a Title Loan?
The good news is that most title loan companies do not require employment to qualify for financing. However, you do need to show proof of income. This includes unemployment, disability, or even retirement income.
Loan companies need this information to verify that you will be able to repay the loan after 30 days. Without a source of income it is unlikely that you’ll be able to pay off the loan in addition to the fees.
How Much Cash Can I Get From a Car Title Loan?
Since title loans are considered secured financing you will be able to get a larger loan, compared to most payday lenders. In most cases you can get up to $10,000 in as little as 30 minutes.
When you apply for a loan, the financing company will appraise your vehicle on site. This will give them an idea about how much your vehicle is worth. Your loan will be based on the current value of the vehicle. It is common for lenders to use Kelley Blue Book or similar services to estimate the value of your vehicle.
Once the current value has been established, you may be able to borrow up to 50 percent of this amount.
Title loan companies will use a variety of factors to determine how large of a loan you qualify for. They will evaluate your financial need and current income to decide how much they will lend you.
What Happens If I Can’t Repay a Vehicle Title Loan?
It is standard practice for title lenders to offer 30 day loans. At the end of this period you’ll be required to pay back the loan amount plus interest charges and fees.
For example, if your loan has a 25% interest rate (Note: Not APR) on a $500 loan you will owe $125 in interest at the end of 30 days. In total you will be required to pay the lender $625 to get your title back.
If you get to the end of the month and you are unable to repay the loan, there’s good news. You can easily roll over the loan into another term. You may be required to pay off the interest balance before a new loan can be issued.
Rolling over a loan can give you extra time to pay off the loan if you are short on cash. However, if you are unable to pay off the interest or become delinquent on your loan, you car may be repossessed.
Essentially the lender will take possession of your vehicle to recover their lost cash. In most states you’ll have an additional 30 days to pay the balance on your loan and recover your vehicle.
However, if you are not able to repay the debt within this time frame the lender will sell your vehicle to recover their lost assets. This is what we want to avoid.
Final Thoughts on Title Loans
That was a brief overview to help answer the question, “How do title loans work?” As you can see there are many things to consider before taking out a loan against your vehicle’s title. These type of loans have high interest rates compared to personal loans or credit card cash advances.
However, if you find yourself in a tough financial decision, a title loan is much cheaper than a payday loan.
Please consider other financing alternatives before you decided to continue down this route. If you fail to pay off your debt you could lose your car and be worse off than you started.