Car Title Loans: The Pros, The Cons, and Everything In Between

Man in suit showing car title loan options to old couple

If you need fast cash to deal with an ongoing emergency or you need to pay bills, a car title loan is a fast, foolproof way to get the money you need. For those strapped for cash, this can be a solid proposition, as most people will get a nice chunk in exchange for using their automobile as collateral.

A title loan can be an appealing deal as long as you have the right information. Before you consider a car title loan application, you need to know the pros, the cons, and everything in between. Here’s everything you need to know about title loans and what you need to become a well-informed borrower.

What Is A Car Title Loan?

Before we learn about its intricacies, we need to ask: what is a car title loan? 

A title loan is a short-term financing option where a borrower uses their vehicle as collateral. 

Depending on the lender, the owner should have full ownership of the automobile or sizable equity on the vehicle to use it. Specifically, lenders will use your car’s title as collateral.

Payment terms for an auto title loan go from anywhere between 15 and 30 days. The lender can also offer longer payment terms, usually with its own caveats. The value of the loan you will receive goes from anywhere between 25% and 50% of the total value of the vehicle post-appraisal.

During your application period, you would need to bring your vehicle for inspection. You would also need to bring a clear car title, a photo ID, vehicle insurance, and a few other document requirements. In most situations, you can keep the car throughout the duration of the loan. 

Pros and Cons of Title Loans

Now that we understand what a car title loan is, we need to weigh its pros and cons. Many like to vilify the financial assistance provided by lending companies. At the end of the day, it’s still up to borrowers to measure the pros and cons of the entire process. Before making a decision, consider these details and see if auto title loans are right for you.

Pro: No Credit Checks

A bad credit score can be a problem for some borrowers. In most situations, this will hinder them from borrowing money from lenders. This can be an issue, especially in an emergency where you need to get quick money. It’s during these situations where title loans shine the most.

The most prominent advantage of car title loans is the lack of credit checks needed for most loans. When you’re borrowing money, most financial institutions would need you to have a good credit score to initiate a personal loan

With title loans, you are already putting up collateral so you don’t need a particularly high credit score. Emergencies don’t wait for your credit score to go up, so at a time of need, car title loans can be a fantastic choice.

Con: High Interest Rates

One common disadvantage of car title loans is its high interest rates. Due to its short repayment term, interest rates for such loans can be higher than usual. In exchange for the lack of credit checks, the repayment interest goes somewhere between 20% and 25% interest charges per month.

A 25% interest rate can be quite hefty if you’re not smart with the amount of money you borrow. From an annual percentage rate, that clocks in at about 300% APR. Even then, the 300% APR value can be misleading as you don’t need to wait for a year to pay back your loan. As long as you pay in the shortest time you can, the interest rates should be easier to pay.

Pro: Quick Access To Funds

Considering auto title loans don’t have credit checks, another solid advantage you get from it is the speed of dispensation. It only takes a few minutes to a couple of hours to get approval and receive the money you need. The time varies depending on the amount of time they need to review your application and assess your vehicle.

As long as you complete the requirements from the lender, you will most likely receive the money in a few hours. At most, it takes a day or two to complete the transaction. If you’re doing a car title loan online, it may take a few days to get your money, but it’s mostly hassle-free for the borrower.

Cons: Shorter Repayment Periods

Title loans typically have somewhere between 15 and 30 days of repayment before they default. Some providers will even give longer repayments and a grace period. Most loans only cost a few thousand dollars, which means, even with interest, they are still easy to pay.

Even then, those who don’t have the immediate facility to pay will have a difficult time with their title loan repayments. Much like with any loan, you don’t want to default on it. The goal is to not default in the first place, but rather borrow only when you have the ability to repay.

Pro: You Keep Your Vehicle During The Repayment Period

Much like most loans that use collaterals, auto title loans will allow you to use your vehicle for the duration of the loan. The collateral is enough to assure the financial institution that you will return the vehicle in the right condition. This gives you a good chance to find jobs or other ways to repay your loan.

As long as you make your payments, you can keep your vehicle with you. You don’t need to suffer through the indignity of losing your vehicle. With on-time repayment, your title loan will pass by as if nothing happened. Once you need to tap into fast cash again, you’ll be more than free to get a new loan.

The Bottom Line

If you plan on taking out a car title loan, you want to have a well-informed decision. Taking out any loan means you need to understand the nitty-gritty of it all. Read everything and make sure that you are amenable to the terms and conditions of the loan.

When you need to borrow money, consider how you can handle repayments and how much money you need. Car title loans are a great way to get money fast in case of an emergency. 

Find a lender that offers generous repayment time, solid rates, and will get out of their way to help you through the process.