Title Loans 101: What You Need to Know

Sometimes situations arise when you need money in a hurry, and your options are limited. For example, unexpected or emergency healthcare costs or discovering that your entire septic system has to be replaced immediately.

Title loans are short-term loans that are built for these scenarios. Here’s everything you need to know about title loans to help you determine if this borrowing method is right for you.

What Is a Title Loan?

A title loan is a short-term loan that uses a vehicle title as collateral to secure the loan. In most cases, a title loan uses a family car or truck, but some loan agencies also except titles on RVs and other recreational vehicles. The amount of money given is dependent on the value of the vehicle.

When you take out a title loan, you provide the lender with the physical title of your vehicle. If you default on the loan, the lender takes ownership of your vehicle and auctions it off to recoup their losses. In other words, failure to pay back the loan within the agreed upon time frame means you lose your car.

Are Title Loans Legitimate?

The fact that the potential loss of a vehicle is made so apparent leaves a lot of people wondering if title loans are legitimate. The short answer is yes: title loans from reputable agencies are legitimate. Many loans– from both banks and agencies– require collateral to secure a loan. Failure to pay the bank often results in repossession; title loans make that process more apparent.

That being said, there are some areas that have restrictions on title loans or rules specific to the state in which they’re being conducted. Securing car title loans in Sacramento may have different regulations than securing one in Dallas. It’s up to the borrower to research these differences.

Applying for a Title Loan

The application for a title loan may vary from lender to lender, but the general steps and requirements will include:

• Identification – you will need to provide your basic details with proof of identification and address.
• Proof of ownership – the loan agency will require proof that you own this car. In many cases that means confirming that you aren’t still making payments on it to the bank or confirming that you have enough equity to justify the loan.
• Proof of insurance and valid license – most loan agencies want to know that you are operating your vehicle legally.
• Bank statement/pay stub – some loan agencies will want to see proof of income.
• Credit check – loan agencies will often conduct a credit check, but having poor credit is not a barrier to getting a title loan.
• Proof of inspection – you must provide proof that your inspection requirements are up to date.

Once the application process is complete, you will provide the title of your vehicle for safe keeping.

Should I Get a Title Loan?

Title loans aren’t for everybody, but they do serve a purpose. As there is collateral put up front, this is one of the few loan options for people who have poor credit. Title loans, like all short-term loans, tend to have a high-interest rate that should be calculated into your plan for paying the loan back. It’s estimated that one in five title loan borrowers have their car taken, which is comparable to national averages of defaulting on loans.

In a nutshell, you should only get a title loan if you know you can meet the terms and pay it back on time– which is how you should treat any form of a loan. For many borrowers, the reward outweighs the perceived risks. Follow smart borrowing practices, and a title loan could help you out of a difficult situation.