Key Takeaways
- A title loan uses your car as collateral, and the lender holds the title until you repay the loan in full.
- Title loan amounts run 25% to 50% of your car’s value, so a $5,000 car could get you between $1,250 and $2,500.
- Most title loans must be repaid within 15 to 30 days, along with interest and fees that can add up to 25% of the loan amount each month.
- Lenders base approval on your vehicle’s value instead of your credit history, so no credit check is usually required for a title loan.
- If you can’t repay a title loan, the lender has the legal right to repossess your vehicle.
A car title loan is one option some people consider when an unexpected bill shows up. But before you sign anything, it helps to understand exactly what a title loan is and how title loans work, so you can decide if it’s the right choice for your situation.
A title loan is a type of collateral loan where you use your car to secure the money you borrow. It’s often marketed as a fast way to get emergency money, but the quick cash comes with real trade-offs worth understanding first.
Keep reading, as we’ll take a close look at how title loans work, the pros and cons of a title loan, and other types of loans you can take out instead if a title loan isn’t the right option for you.
- What Is a Title Loan?
- How Does a Title Loan Work?
- What Are the Requirements for a Title Loan?
- What Disqualifies You for a Title Loan?
- How Much Can You Borrow with a Car Title Loan?
- What Are the Pros and Cons of Title Loans?
- What Are the Alternatives to Title Loans?
- Is a Car Title Loan Right for You?
- Title Loans: FAQs
What Is a Title Loan?
A title loan, also known as a pink-slip loan, is a short-term loan that requires your car as collateral to borrow money. This means that if you (as the borrower) aren’t able to repay the loan, the lender likely has the right to repossess, or take away, your vehicle. You’ll typically borrow 25% to 50% of the car’s total value and get to keep driving it as you repay the loan. Most title loans are due in 15 to 30 days, and because of their high-interest rates, title loans may not be for everyone.
Keep in mind that some states may not allow title loans, so it’s important to check the laws in your state if you’re considering one.
How Does a Title Loan Work?
How do title loans work, exactly? Getting a car title loan involves a few clear steps, from application to repayment. Here’s a walk-through of the process, start to finish.
1. Application
If you’re interested in a title loan, search for a lender that offers them. Once you do, you may apply for a title loan—as long as you own your vehicle. You’ll need to show the lender your car’s title as proof of ownership, and you must prove there are no liens (a claim or legal right on an asset used as collateral to satisfy a debt owed on it) on the title. You’ll most likely have to do this in person because the lender will need to see your vehicle before agreeing to lend you money.
2. Vehicle inspection and appraisal
Once you apply, the lender will need to physically look over your car. This step is important because the loan amount depends on your car’s value, not your credit score. During the inspection, the lender checks the vehicle’s make, model, year, mileage, and overall condition, and they’ll often compare it against a standard pricing guide to land on a fair market value. That number then determines how much the lender is willing to offer as part of your auto title loan.
3. Hand over your title
If the lender approves your application, you’ll give the lender the title to your car in exchange for the loan. At this point, the lender will also place a lien on the car, and you’ll receive your money.
4. Receive cash the same day
Once the paperwork is signed and the lien is placed on your title, you can often walk away with money the same day. Many lenders offer same-day funding, whether through cash, a check, or a direct deposit to your bank account. This quick turnaround is one of the biggest reasons people choose a car title loan when they’re short on time. Just remember that speed doesn’t change the total cost; you’ll still owe the full amount plus interest and fees once the term is up.
5. Repay your loan or default
Title loans are usually 15- to 30-day loans. Once this period ends, you must make the loan payment, plus interest and fees. And those fees are not cheap—most lenders charge a monthly fee of 25% of the loan amount. In most cases, you may continue driving your car while repaying the loan.
What Are the Requirements for a Title Loan?
Lenders look at your vehicle more than your credit score, but you’ll still need to meet a few basic requirements before you can qualify for a car title loan, including:
- Clear title in your name. You must own your car, with no outstanding loan or lien attached to the title.
- Government-issued ID. Lenders need to confirm your identity, so you’ll need a valid driver’s license, state ID, or passport.
- Proof of income. Even though credit isn’t checked, lenders want some assurance that you can repay the loan, so pay stubs or bank statements are often required.
- Proof of vehicle insurance. Your car needs to be insured for the lender to approve the loan, since it’s the collateral securing your debt.
- Physical vehicle inspection. The lender will need to see your car in person to appraise its value and condition.
Beyond these standard requirements, some lenders may ask for extra security, like a spare set of keys or a GPS tracking device installed on your car. This gives the lender an added way to locate or manage the vehicle if you fall behind on payments.
What Disqualifies You for a Title Loan?
Not every car or borrower will qualify for a car title loan. Here are a few common reasons an application might get turned down:
- An active auto loan on the vehicle. If you’re still making payments on your car, you likely don’t have a clear title, which most lenders require.
- A salvage or rebuilt title. Cars with a salvage title have been declared a total loss by an insurance company, which makes them harder to value and less appealing as collateral.
- High mileage or poor condition. An older car with a lot of wear may not be worth enough to qualify for a meaningful loan amount.
- Missing paperwork. Without a valid ID, proof of income, or proof of insurance, most lenders won’t be able to approve your application.
- Living in a state that restricts title loans. Some states cap interest rates or ban title loans entirely, so your location can disqualify you regardless of your car’s condition.
How Much Can You Borrow with a Car Title Loan?
In most cases, a title loan comes out to anywhere between 25% and 50% of the total value of your car. This is why the lender must examine the car during the application process; it allows them to figure out a fair value of your vehicle.
As an example, if a lender determines your car is worth $5,000, your title loan amount may be somewhere between $1,250 and $2,500.
What Are the Pros and Cons of Title Loans?
As with most loan options, there are good things and not-so-good things about title loans.
Pros of title loans
- No credit check is required. Most title loans don’t require a credit check, which makes this a good option for people who might not have perfect credit or be able to qualify for other types of loans.
- Fast approval process. Because there’s no credit check, it usually takes only a few moments for your car title loan application to be approved or denied. All it requires is the lender to review your application and inspect your vehicle to determine its value.
- Quick access to cash. Because the approval process is fast, a borrower will get their cash soon after the lender approves, sometimes even the same day.
Cons of title loans
- High interest rates. Car title loans charge very high rates of interest and annual percentage rates (APR). These interest rates are far higher than what you’d typically pay on a credit card or personal loan, so it’s worth comparing costs before you borrow.
- Interest and fees add up quickly. Even if you only have the debt for a short period of time, you’re going to wind up paying back a lot more than you borrowed. If you take out a title loan, be sure you’re ready to pay back more than you received.
- Fast repayment periods. Car title loans are short-term loans. This means they often must be repaid within two weeks or up to a month after the borrower receives the loan from the lender. When you compare this to traditional loans, in which borrowers have six months to a few years to repay, you can see just how short a car title loan’s terms are.
- Potential loss of your car. When you agree to the terms of a title loan, you’re giving the lender legal permission to take your vehicle if you fall behind on loan payments. If the debt reaches a point where you simply can’t pay it, the lender can then take your car away. This can be avoided, however, by repaying your loan on time.
- They don’t build credit. Most title loan lenders don’t report your payments to the credit bureaus. That means paying on time won’t help you raise your credit score, though missing payments can still hurt you if the lender sends your debt to collections.
What Are the Alternatives to Title Loans?
If the terms of a car title loan make you a bit nervous, or if you do not own a car that can be used as collateral for a title loan, there are different loan options out there when you need cash quickly.
| Feature | Title Loan | Credit Card | Payday Alternative Loan | Personal Loan |
| Collateral | Your car | None | None | Depends on the loan |
| APR | Often 300% or higher | Around 20% to 30% | Capped at 28% | Often 6% to 36% |
| Repayment terms | 15 to 30 days | Ongoing, minimum monthly payments | 1 to 12 months | 1 to 7 years |
| Credit check | Usually not required | Required | Required (must be a credit union member) | Usually required |
| Risk | Vehicle repossession | Growing debt, credit damage | Limited to credit union members | Credit damage if you miss payments |
Credit Cards
If the cash you need is for a large purchase or expenses, one way to use a credit card is to simply charge the purchase or expenses. Even if you are unable to pay off the entire purchase at once, you can still make small monthly payments toward the credit card debt. You’ll be charged interest on the card’s balance, but the interest rates are much lower than you would pay with a title loan. Many credit cards also allow you to borrow money based on your card’s line of credit; this is often called a cash advance. The amount of cash you borrow is simply added to your credit card balance.
Payday alternative loans
A payday alternative loan (PAL) allows members of some federal credit unions (you must be a member) to borrow small amounts of money at a lower cost than regular “payday” loans. With a PAL, borrowers can also repay the loan over a longer period of time than a payday loan. And there’s no collateral required.
Personal loans
A personal loan is money that you borrow from a bank, online lender, or credit union. You then make monthly payments for a certain period of time, plus interest, until the debt has been paid off. There are different types of personal loans, such as secured and unsecured. Secured loans require collateral but may have a lower interest rate, while unsecured loans don’t require collateral but may have a higher interest rate.
Is a Car Title Loan Right for You?
A title loan is certainly not for everyone. You should only consider a title loan if you can repay the loan when the term expires. Otherwise, you’re going to be stuck with very high interest rates and fees, which can add up to create a large debt. And if you’re not able to repay the loan, your car may be repossessed.
If you’re not comfortable with these possibilities, there are other loan options out there, such as personal loans. Sun Loan can help you borrow the money you need, even if your credit isn’t perfect. We look beyond your credit score to better understand your financial history. Our personal installment loans allow you to quickly borrow money and pay it off affordably each month.
Apply for a personal installment loan online, stop by one of our local branches, or give us a call at (800) SUN-LOAN to speak to an experienced, friendly loan professional about your options.
Title Loans: FAQs
Why do people use title loans?
People often turn to title loans when they need cash quickly and don’t qualify for other types of loans due to poor or limited credit. Because approval depends on your car’s value rather than your credit score, a car title loan can feel like an accessible option during a financial emergency.
What happens if you can’t pay back a title loan?
If you can’t repay a title loan, most lenders will first charge additional fees and interest, or offer to roll the loan into a new term for an added fee. If the debt is still unpaid, the lender has the legal right to repossess your car and sell it to recover the money owed.
Are title loans legal in all states?
No. Some states ban title loans outright, while others cap the interest rates lenders can charge. Before applying for an auto title loan, check your state’s specific laws to see what protections and restrictions apply.
Can I get a title loan if I’m still paying off my car?
Usually not. Most lenders require a clear title with no liens, which means you need to own your car outright. If you still owe money on your vehicle, you likely won’t qualify for a title loan until it’s paid off.
