What to Know About Car Title Loans


A car title loan, also referred to as an auto title loan or vehicle title loan, is when a person temporarily surrenders the title of his or her vehicle to borrow money for a short period of time. These loans tend to get a bad rep — and there are several reasons why — but they also can be useful for some.

Let’s start with the advantages of car title loans. Borrowers use car title loans when they’re in need of fast money. Sometimes, a borrower can even acquire the money the same day he or she applied for the loan.

These loans tend to get a bad rep — and there are several reasons why — but they also can be useful for some.“It’s a good way for some people with few assets to get money and, in many cases, can be less expensive than the alternatives,” says Eli Lehrer, national director of the Center on Finance, Insurance, and Real Estate.

These types of loans are also relatively hassle-free, as they don’t require a lengthy approval process, unlike many other types of financing. The borrower is using his or her car as collateral to borrow money, and because of that, car title loans are relatively easy to qualify for, even in the case of a not-so-great credit score. Typically all you need is proof of a reliable income (if even that) and your vehicle — car, truck, motorcycle, etc. — valued at more than the loan you’re receiving.

In addition, the borrower is still able to use the vehicle while making payments on the loan. The only way to lose privileges of the vehicle is if the borrower defaults on the loan and the lender repossesses it.

While car title loans have their time and place, there are certainly some major red flags and concerns associated with them.

“We consider these loans to be a triple threat for borrowers,” says Ginna Green, spokeswoman for the Center for Responsible Lending. Whereas most car loan lenders take into consideration the borrower’s financial situation (e.g., income, mortgage, credit, other bills) to make sure the payments are affordable, car title lenders do not, according to Green.

“We view extremely high-cost loans in and of themselves as harmful to consumers. You’re paying a significant amount in interest that can’t go toward other expenses like housing, food, medical care and other necessities,” explains Tom Feltner, director of financial services for the Consumer Federation of America.

Also, since car title loans are short term, borrowers must repay the loan, usually within 30 days, and if they aren’t able to, late fees will apply. If they continue to not pay, the lender will eventually repossess the vehicle. There have even been some cases when the lender installed a GPS tracking device in the vehicle and disabled it for late payment.

Speaking with your local financial institution is always your best bet for any financial matter.

 

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