Title loans are secured loans that use the borrower’s vehicle as collateral. Sometimes you will hear these loans referred to as car title loans or auto title loans. No matter what they are called, they work the same way; they use a vehicle to secure funding. Wondering how much you can get for a title loan? There are several factors that lenders consider when determining their loan amount. Below is more information on those variables along with details on title loans in general, and alternative loan options if you need funding.
How Exactly Does Title Loan Approval Work?
If you haven’t applied for a title loan before you may be curious about how the approval and loan process work.
Because these loans are secured, your credit score and credit history are not important factors for eligibility. One reason why borrowers with credit difficulties get a title loan.
Instead of focusing on your credit score, lenders will pay attention to how much your car is worth, your income, and your ability to repay your loan. To be approved for one of these loans, your vehicle must be in road-safe and legal condition. This includes having car insurance.
One thing to remember is that to qualify for a title loan, you will need a car and it will be best to own it outright. Some title loan lenders will allow you to refinance a car loan or existing title loan. For example, if you are financing your car and get approved for a title loan, you can use the new loan to pay off the existing one. If there are any funds remaining you can use them for your expenses.
Factors That Determine How Much Cash You Can Get With a Title Loan
In general, title loan amounts can range from a few hundred dollars up to a few thousand, the average funding amount being a minimum loan amount of $100 and the higher end of the loan being $5,500, according to the FTC. A few variables help determine your specific loan amount (these factors also influence car title loan approval). Here are more details on these factors:
The Value of Your Vehicle
How much your vehicle is worth will play a massive role in the title loan amount. Your car’s make, model, condition, and mileage will all determine how much your vehicle is worth. If you are curious about your car’s current value, you can check out Kelley Blue Book or other similar websites. Lenders will ensure that your loan amount does not exceed your car’s current value. This is because the resalability of the vehicle is really their only protection when working with poor credit borrowers.
Your Income
Income is a huge factor when determining the title loan amount. Lenders will want to make sure that you can repay the loan amount they give out, and your gross monthly income is a good indicator of that. Many lenders will also ask about existing debt and bills to gauge how much disposable income you have.
Your Ability To Repay the Loan
Your ability to repay your loan factors in many different things, including your income, debt, the number of bills you have, whether you have another person contributing to your household, etc.
With all these factors in mind, lenders will then give you an estimate of your loan amount when you apply for pre-approval, and with final approval, you will get an exact amount.
Keep in mind that even if you are approved for a higher loan amount than you applied for, you never have to borrow more loan proceeds than you need!
How To Increase Your Title Loan Amount?
Trying to get the most out of your title loan? Here are some tips to help you potentially increase the amount of funding you could get from a title loan:
Use Your Best Vehicle
If you have more than one vehicle, it will make sense to use the one with the most value. Because of how a car title loan works, funds are heavily based on your vehicle’s value. And so, the more your car is worth, the higher that maximum loan amount goes.
Make Sure Your Car Is In The Best Condition Possible
Although you may not be able to add anything to your car to make it worth thousands more, you can definitely show your vehicle in the best light to get the most out of your loan. And so, it will be a good idea to take care of any repairs inside and outside the car before your lender inspects it. Replacing any parts that are obviously broken, fixing any body or paint damage, and even cleaning the interior of your car can all help bring up that value. Or at the very least prevent it from decreasing.
Look Around at Lenders
You likely won’t find title loans with financial institutions like a bank or credit union and will instead have to turn to private lenders online or in person. Some lenders may specialize in more significant title loan amounts than others. Or some may be more flexible with loan amounts for their borrowers. The point here is that lenders can be quite different from one another, so it is essential to look at several. The more lenders you look at, the better chances of a higher loan you may be able to get. One thing to remember with this is that pre-approval is the way to go, as too many hard credit inquiries will significantly hurt your credit score.
Make Sure To Show All Your Income
Income is another significant component of the loan amount. And so, to increase your chances of a higher loan, make sure you show a lender all of your income sources, regardless of how big or small they are—it may mean getting more from your loan.
Pay Off Debt Before Applying
Although credit isn’t a large factor with title loan eligibility, things like your debt to income ratio may impact your car title loan amount. With less debt, you’ll have more usable income, which can look better to lenders when they check out your ability to pay the loan. And so, if you can do so before applying for your title loan, pay off some of that debt to increase your chances of a higher loan amount.
Add a Cosigner or Co-borrower to Your Loan
Another thing you can do to increase your chances of approval and your potential loan amount is to add a cosigner or co-borrower to your loan. A cosigner or co-borrower will have to have good credit and a source of income that you can add to your loan. The main difference between the two is that, unlike a cosigner, a co-borrower has to help with monthly payments and will essentially take out the loan with you. While a cosigner is only responsible for the loan if the primary borrower (you) cannot repay it. Adding either of these can significantly help secure a larger loan amount.
Can You Have Multiple Title Loans?
You won’t be able to have multiple title loans on one vehicle. But, if you have more than one vehicle, it may be possible to have more than one title loan. However, it may not be the best idea to do so. For one thing, title loans are expensive; depending on your state the APR for your loan could be as high as 300%! Below you will find additional information on why it may not be the best idea to have multiple car title loans or even a single one.
Some Pros and Cons of Car Title Loans
Before you take out any loan, it will be important to know about some of the pros and cons of it, regardless of loan type. Here are some pros and cons you should know about with title loans:
Advantages:
- You don’t need to have a good credit history or a good credit score to apply.
- Title loan funding can be fast, making them a good loan option for quick cash during an emergency.
- Almost everyone has a car, while other loans that require an asset, like a home equity loan, may not be available for the majority of people.
- Depending on your state, you may have many lenders to choose from.
Disadvantages:
- Title loans have incredibly high-interest rates making it very easy to fall into a cycle of debt. So much so, that these loans are considered predatory and are not available in every state.
- You are risking your vehicle if you cannot repay the loan or if you break any part of the contract, including something as simple as not having the right insurance coverage. Getting out of a title loan with your car is possible, but can be difficult.
- Title loans are usually short-term options that may not work for everyone. And that short period coupled with high-interest rates can mean juggling the high cost in a short amount of time.
Bad Credit Personal Loans as an Alternative to Title Loans
Even if you have bad credit, title loans should not be your first option. These loans are just not a smart financial choice and come with an extremely high cost.
Instead of title loans, look to bad credit personal loans instead. Like title loans, you can find these options with a private lender, however unlike title loans you get flexibility with loan terms, without having to use your vehicle or pay so much in interest rates.
Personal loans are some of the most versatile loan options out there and can make funds available in as little as a few business days. With your personal loan, you can look forward to steady monthly payments until the loan is paid off. Interest rates are usually much lower than car title loans, and you are likely to find more options.
References:
What To Know About Payday and Car Title Loans | Consumer Advice