When going through a financial emergency, borrowers tend to turn to the fastest and most convenient solution available. Title loans are one common solution when bad credit borrowers  need quick cash. But before you sign a title loan agreement, make sure you understand the ins and outs, and all of your potential alternatives. 

Here, you will find all the essential information borrowers need to know about online title loans. Once you have all the facts, you can decide if a title loan online is the best decision or if you are better off going with another loan product.   

What Is a Title Loan?

A title loan is a type of short-term, high-interest loan available to borrowers who own a vehicle. With a title loan, the borrower uses their vehicle title as collateral, which means loan amounts are usually determined by the value of the vehicle. Typically, the more value a vehicle has, the higher the loan amount a borrower may receive on a car title loan. 

If you are suffering from financial hardship or poor credit, you may have come across title loans when searching for ways to get fast cash loans. Title loans are often marketed as short-term loans for borrowers with bad credit in need of a loan

What Does Collateral Mean?

Collateral is an asset with equity that a borrower pledges to use as security for a loan. When borrowers use collateral, their loan type is considered a secured loan. Loans that don’t require collateral are referred to as unsecured loans. The most common forms of collateral borrowers use to secure loans are automobiles and property. Title loans typically require the borrower’s free and clear vehicle title as collateral, while home equity loans may require the borrower’s home/property as collateral. 

How does collateral work in a loan? When lenders approve borrowers for loans, they need to make sure borrowers have a way of repaying their debt. Typically, lenders will consider financial factors like credit scores or income during the approval process for unsecured loans. But with secured loans, lenders will instead consider the value of the borrower’s collateral. 

Secured loans that use collateral can be helpful for borrowers with bad credit, no credit, or to people who are dealing with other financial hardships like past bankrupcty. 

Online Title Loans for Bad Credit vs. Salvage Title Loans

A salvage title loan is similar to a regular title loan, except the borrower is using a salvaged vehicle instead of a traditional car as collateral. A salvage vehicle is a car that has been put together with parts from other vehicles, or a vehicle that has been deemed salvaged after a bad car accident. 

Some title loan lenders accept salvage vehicles as collateral, but not all do. For the lenders that do accept salvage vehicles as collateral for bad credit title loans, borrowers should expect significantly lower loan amounts. In fact, it may not even be worth it to use a salvaged vehicle for a title loan unless there is absolutely no other way you can access money.  

Title Loans vs. Auto Loans

Title and auto loans are both secured loans where a borrower’s vehicle acts as collateral. Auto loans are used to buy a car which then acts as collateral for the rest of the repayment term. Title loans, however, are given based on the value of a borrower’s vehicle that they already own. 

While title loans are generally short-term, high-risk loans, auto loans are spread out over a longer period of time and offer better interest rates and terms. Auto loans allow a customer to purchase a vehicle and pay for it over time since many borrowers can’t afford to buy a vehicle outright.

Payday Loan vs. Car Title Loans Explained

To understand the difference between payday loans vs. title loans, let’s look at the basics of each funding type. Payday loans were designed as high-interest, short-term loans, just like title loans. But payday loans are unsecured, meaning the borrower doesn’t have to use any form of collateral in order to qualify. The purpose of payday loans is to help borrowers who need extra cash while they are in between paychecks. Because of this, borrowers are expected to pay back their payday loans within about two weeks or less. 

Title loans have slightly longer payback terms compared to a payday loan, but they are still extremely short. The average payback schedule for a title loan is usually a month or so.

Title Pawns vs. Title Loans Explained

Title pawns and title loans are both types of financial aid that utilize the borrowers’ vehicle. However, they have important differences all borrowers should know about. With car title pawns, the borrower is required to leave their vehicle in the possession of the pawn shop owner until they pay back their loan in full. Should a borrower miss a payment or default on their title pawn, the shop owner would then be free to sell the vehicle to any interested buyer. If you rely on your vehicle for everyday commuting, a car title pawn may not work well for you. 

What Kinds of Cars Qualify for an Auto Title Loan?

Just about any vehicle with positive equity is able to qualify for a title loan. For reference, the equity in a vehicle is simply another way of referring to the value of a car. Cars may either have positive or negative equity depending on their condition. Positive equity means a vehicle is worth more than its current market value. In contrast, negative equity refers to the depletion of a car’s equity compared to its current market value. 

How Do I Calculate the Equity in My Vehicle?

The best way to get an idea of your car’s current value is to check its Kelley Blue Book listing. Kelley Blue book is a car research company that collects data on the value of vehicles for consumers and the automotive industry. Both individual car owners and car dealerships reference Kelley Blue Book when determining the equity in most vehicles. 

To see the value of your car according to Kelley Blue Book, you can use their database to search your car’s specific make, model, and year. 

You should also consider any damages, as well as any upgrades you’ve added to your car when calculating its value. For example, the value of your vehicle may decrease if you have body or cosmetic damage from a past car accident or excessive wear and tear. On the other hand, the value of your vehicle may increase if you have extra cosmetic features, such as a sunroof, a high-tech stereo system, etc. 

After considering these features, you should have an accurate estimation of the current value of your car.   

What Is a Lien on a Car Title?

When car titles have a lien, this could mean that the owner of the vehicle has not fully paid their car off yet. A bank or car dealership may be listed as a lienholder on a vehicle title if the car owner is still paying back their original auto loan. 

Furthermore, when title loan lenders grant approval for loans, they sign onto the borrower’s vehicle title as a lien holder. By signing on as a lien, the title loan lender gains partial ownership over the vehicle. This means title loan lenders have the legal right to repossess a borrower’s vehicle should they default on their loan. 

What Does a Free and Clear Car Title Mean?

When a vehicle title is free and clear, this means that there are no liens listed on the vehicle. Legally, online title loan lenders may only accept car titles that are free and clear. This means that car owners who are still paying off their auto loans may not be able to qualify for title loans.

Sometimes, lenders are willing to buyout a potential borrower’s car so they may add themselves as a lien on the title. But keep in mind that this would increase the balance of your title loan, making it that much harder to pay off. 

Do I Need a Car Inspection for Auto Title Loans?

Some lenders require an in-person vehicle inspection before accepting the application. The in-person title loan inspection would involve the borrower driving their car to the lender’s brick-and-mortar location, where a loan agent would thoroughly inspect the vehicle, its functionality, and overall condition. This may be an inconvenient option for borrowers who work during normal business hours or who keep a busy schedule. 

There are also other title loan lenders that don’t require the car in person in order to complete a vehicle inspection. Instead, the title loan company would request a few photos of your vehicle taken from multiple angles. You can usually take these pictures from your smartphone and text them to your lender or attach them to an email to send to your lender virtually. 

Can I Get a Car Title Loan in Any State?

Online title loans are not available in every U.S. state. Some states have laws that either restrict or outright ban title loans. Before you fill out an online car title loan application, make sure this type of funding is allowed where you live. 

Check out the list below to find out if title loans are legal, restricted, or prohibited in your state as of 2022.  

Legal
  • AL
  • AZ
  • CA
  • DE
  • GA
  • ID
  • IL
  • LA
  • MS
  • MO
  • SC
  • SD
  • TN
  • TX
  • UT
  • VA
  • WI
Prohibited
  • AK
  • AR
  • CO
  • CT
  • FL
  • HI
  • IN
  • IA
  • KS
  • KY
  • MA
  • ME
  • MD
  • MI
  • NV
  • NH
  • NJ
  • NY
  • NC
  • ND
  • OK
  • OR
  • PA
  • RI
  • VT
  • WA
  • WV
  • WY
Restricted
  • MN
  • MT
  • NE
  • OH

How Do I Qualify for a Car Title Loan?

If you have less-than-perfect credit, you may be worried about qualifying for any type of loan. Lenders typically focus on the income and equity in the borrower’s vehicle when determining qualification for car title loans. 

Can I Get a Title Loan Even if I Have a Bad Credit Score?

You may be wondering what kind of credit score you need in order to receive instant approval on a title loan. Since title loans use high equity vehicles as collateral, lenders typically accept borrowers with just about any credit score. This approval flexibility is what makes title loans such a popular choice for borrowers with a particularly low credit score.   

What if I’m Going Through Bankruptcy or Foreclosure?

If you are currently going through the bankruptcy or foreclosure process, it is probably not the best time to take out a loan. But, if you are trying to recover from bankruptcy or foreclosure, you may be looking for additional funding to help you get back on your feet. While title loans are typically not available to people who are currently involved in declaring bankruptcy or dealing with home foreclosure, they certainly are to people who have this kind of history in their financial records. 

Do I Have To Give Up My Car When I Have a Car Title Loan?

While borrowers give up partial ownership of their vehicle when they get a title loan, they typically retain use and access to their car while they pay back their loan. As long as you keep up with the terms stated on your loan contract, you may keep driving your vehicle while you have a title loan. 

Keep in mind that a lender may duplicate your car keys during the application process. They could also install a GPS to track your vehicle and a device to disable your ignition if the lender has to repossess the car. Once you’ve been approved and receive your funds, you’re free to use your vehicle as desired while making payments on the loan. 

How Much Cash Can I Get on a Car Title Loan?

One of the first questions many borrowers have is, “How much can I get for my car title loan? The answer depends on how much equity, or monetary value, the borrower’s vehicle has. While it’s possible for certain types of vehicles to qualify borrowers for thousands of dollars on a car title loan, this is not usually the case. Car title loans are generally small loans of a few hundred dollars or less.

Unless you have a brand new vehicle, a high-end sports car, or another type of extremely expensive vehicle, chances are you will receive a minimum loan amount on an auto title loan. 

How Does Getting a Car Title Loan Work?

Before getting any kind of loan, it’s a good idea to research lenders. You can research a lender by visiting their website and looking at their various product pages. It may also be a smart idea to look up reviews online to see what kind of experience other consumers had with a particular lender. You can find reliable reviews with resources like: 

  • Google reviews. 
  • Reviews left with the Better Business Bureau. 
  • Other review services such as Yelp!

Below is a breakdown of how the title loan process works. 

Step One: Fill Out an Online Auto Title Loan Application 

The first step is to fill out a title loan application. You can usually apply online, over the phone, or by visiting the lender’s brick-and-mortar location. After receiving your application, the lender will run a quick credit check to confirm that you are not currently going through the bankruptcy or home foreclosure process. 

Step Two: Send Documents to Your Car Title Loan Lender

If approved, your lender will request some documents to confirm your information. These documents may include the following: 

  • Driver’s license
  • Proof of residency
  • Proof of sufficient income
  • Lien-free car title
  • Several photos of your car
  • Vehicle Identification Number (VIN) 
  • Social security number (SSN) or Individual Taxpayer Identification Number (ITIN)

After turning in your documents, your lender will look at your vehicle, consider its make, model, year, and current condition, and determine its equity. Once the car has been inspected, the lender estimates its value and approves a loan amount based on that valuation. Title loan amounts can usually range anywhere from $100 all the way up to $10,000. The lender will likely only offer the borrower a percentage of the value of the vehicle in question. 

Step Three: Final Approval and Signing Your Auto Title Loan Agreement 

Once you sign your loan contract, you should expect to receive your funding within a day or so. Title loan lenders typically allow borrowers to receive funding via the following ways: 

  • Direct deposit
  • Money order
  • Wire transfer
  • A check in the mail

What Documents Do Lenders Require for Car Title Loans?

During the online title loan approval process, lenders will request several pieces of documentation. If you are looking for same-day approval on car title loans, it may be a good idea to gather these documents before you even start your application. Here’s what you will need: 

  • Government-Issued Identification – To prove your identity, lenders require a form of government-issued photo I.D. Appropriate forms of identification may include a driver’s license, passport, or state-issued I.D. 
  • Free-and-Clear Vehicle Title – Your lender will also hold onto your vehicle title during the life of your loan. After you pay back your balance, your lender will remove themselves as a lien, and you may receive your vehicle title back. 
  • Photos of Your Vehicle – Along with your vehicle title, lenders also need several photos of your vehicle. Or, they may require you to take your car for an in-person inspection. If your lender allows you to send photos, make sure to include several pictures of the front and sides of your vehicle. You will also need to include your car’s VIN, which you can typically find on the driver-side door jamb or on the front of your engine block. 
  • Proof of Income – Lenders must also ensure their borrowers have the means to repay their debt. Borrowers can prove they have a steady income to pay back auto title loans by providing a pay stub, bank statement, tax return, and more. 
  • Proof of Residency – Laws and regulations regarding title loan amounts, interest rates, and even payback terms can vary from state to state. To ensure lenders are pairing borrowers with the appropriate loan products and details, they must confirm each borrower’s address. You can prove your residency by providing a mortgage statement, lease agreement, or any other important piece of mail with your full name and address.
  • Bank Account Information – Most lenders will also ask for a borrower’s bank account information, which includes their routing and account number. This information allows lenders to distribute funds via direct deposit, allowing borrowers to receive quick cash as soon as they are approved. 

Sometimes lenders require other documents in order to confirm the information given on an application. If your title loan lender needs additional information from you, they will let you know early on in the approval process. 

What Are the Interest Rates on Car Title Loans?

Along with paying back the borrowed amount (also known as the principal loan amount), borrowers must also cover interest rate charges when paying back online title loans. Besides the interest rate, title loans can include other fees as well. 

The average interest rate on title loans can reach up to the triple digits. If borrowers don’t pay back their title loans right away, the high interest rates may cause their balance to actually increase from month to month. 

How Do Car Title Loans Work if You Are in the Military? 

Borrowers who are a part of the military may have certain advantages when it comes to online car title loans. Thanks to the Military Lending Act of 2006, borrowers who are a part of the United States Army, Navy, Air Force, Marines, or Coast Guard can enjoy the following benefits when it comes to loans like online auto title loans, payday loans, personal installment loans, or credit cards:

  • Interest rate cap of 36% 
  • No requirement for waivers when it comes to consumer protection laws 
  • No mandatory allotments, meaning lenders cannot take money directly from a borrower’s paycheck 
  • No prepayment penalties 

Pros and Cons of Secured Loans

Title loans are a type of secured cash loan, meaning there is a form of collateral used to secure the funding. With a title loan, the collateral used is the vehicle title of the borrower’s car. Another common type of secured loan is a mortgage, where the borrower’s home/property is used as collateral. 

Other types of loans, such as unsecured loans, do not require the borrower to offer collateral of any kind. Before you decide on a title loan, it’s important to understand the pros and cons of secured vs. unsecured debt.  

Some advantages of secured loans include the following: 

  • Bad credit is Ok 
  • Past bankruptcy is Ok 
  • Fast approval time 

Disadvantages of secured loans all borrowers should know about are: 

  • Potential loss of collateral 
  • High interest rates 
  • Brief payback terms 

What Happens if I Can’t Pay Back a Car Title Loan?

What happens if you get a title loan and can’t pay it back? Is there a way you can get out of a title loan without losing your car?

You may not have to worry about your title loan lender repossessing your vehicle if you miss your first payment, but you certainly don’t want to make a habit of submitting your payments late or not at all. After several delinquent payments, your title loan lender technically has the right to repossess your vehicle. 

If you can’t make a payment on time, the lender might be willing to work with you by offering to refinance or renegotiate the loan terms. However, if you aren’t able to repay the loan, the lender has the right to take your vehicle away. They would then sell your vehicle to recover the loss.

Car Title Loan Rollover vs. Refinancing

An option for borrowers who are having trouble paying back their title loan is to either try a loan rollover or refinancing. A loan rollover involves working with your current lender to roll your existing loan over into a new loan agreement. Title lenders typically extend loan terms during a loan rollover. While this may lower the borrower’s monthly payment, it also increases the total interest and the amount of time it will take for the borrower to pay off their loan.  

Refinancing involves working with companies that pay off title loans as well as other accumulating debts you may have. If you are considering debt consolidation, you have probably come across the concept of a loan refinance. Borrowers can refinance to pay off their various debts, which may include: 

  • Title loan debt
  • Student loans
  • Credit card debt
  • Debt from other loans / financial obligations 

Getting a loan refinance can be a great way to lower the amount of payments you are making each month, save money on interest rate charges, and even get additional funding. 

Can I Use Car Title Loan Funding on Anything?

One important benefit of car title loans is that borrowers can spend the funding on whatever they want. However, title loans are meant to be used to cover financial emergencies or necessities when no other funding options are available. Before seeking title loans, borrowers are encouraged to consider other financing such as dipping into their savings, getting a personal installment loan, or even debt consolidation loans. 

To ensure borrowers are planning to use their loan responsibly, lenders may ask what a borrower intends to use their approved funds on in their loan application. 

Some common expenses borrowers may consider covering with title loans online include: 

  • Weekly Necessities – Recurring expenses like groceries or gas are a necessity in the day-to-day lives of most people. Needed to go grocery shopping while you are waiting for a paycheck to come through can be extremely stressful. 
  • Important Bills / Monthly Financial Obligations – Making timely payments on your bills and other financial obligations is extremely important if you want to maintain or improve your credit. Missing just one payment can negatively affect your credit reports for up to seven years! 
  • Unexpected Expenses – Minor accidents such as a small fender bender or a few hours in the E.R. can quickly put you several hundred dollars in the hole. 

If you are dealing with more serious financial difficulties, an online title loan may not be the best long-term solution. For example, some long-term expenses that may be too much for a title loan to handle are: 

  • Expensive medical bills
  • Past due bills or other delinquent payments
  • Home improvement projects or repairs 
  • Debt consolidation 

For expenses like this, you may need a more sustainable financial solution. 

Alternatives to Auto Title Loans

Due to the high interest rates that come with car title loans, they may not be the best long-term financial solution. Fortunately, there are plenty of financial institutions offering a variety of loan products that are willing to work with a wide range of borrowers. Depending on your financial situation, you may find that some lenders and loan products are better suited for your needs than others. 

Personal Installment Loan 

Most personal loans give borrowers the option to pay in installments, meaning they can space out their monthly payments, so they are small and manageable. This customization makes personal installment loans a great long-term financial solution for borrowers looking to keep their finances steady and organized.  

Installment loans come with most of the benefits borrowers can enjoy from auto loans, such as fast funding time and flexible approval requirements. However, installment loans do not require expensive collateral, so borrowers don’t have to worry about their lenders repossessing their vehicle! 

Personal installment loans may also come with other advantages like:

  • Industry-Wide Competitive Rates – While other lenders are known for charging extremely high rates, personal loan lenders typically base their rates on the most current market research, as well as the financial history of the borrower. 
  • Flexible Payment Options – During the approval process, lenders will work with borrowers to agree upon a payment plan that works for everyone. This allows borrowers to customize their payment schedules to their individual budgets. 
  • Refinancing Options Available – Since personal loans are so flexible, lenders are often willing to offer borrowers refinancing options so they can extend their payment terms or receive additional funding. 
  • Varying Loan Amounts – Personal loans are designed to work as either long or short-term financing. That means whether you are looking for a minimum or maximum loan amount, there are personal loan products ready to meet your needs! 

Cash Advance 

Another option for borrowing money is a cash advance. You may be able to get a cash advance through your employer or with your credit card. If you choose to get a cash advance through your employer, you would first need to reach out and explain the situation. From there, your employer may give you a pay advance which you can then use to cover your expenses. Remember, an employer’s cash advances essentially pay you for work you have yet to complete. So you will have to work off your cash advance before you will start to earn additional money from your job again. 

You may also be able to access a cash advance using your credit card. Simply visit an ATM and withdraw funds using your credit card just as you would with your debit card. Keep in mind that interest rates on cash advances are often higher than normal credit card purchases. To avoid digging yourself into a hole of credit card debt, make sure you are paying off your cash advance balance regularly. 

Bank Loans

If you feel confident about your credit score and credit history, you may be able to get quick approval on a loan from a bank. Banks are traditional lenders, meaning they typically only work with borrowers with high credit scores and clean financial records. Unless you meet those requirements, you may not be able to qualify for a bank loan. 

Credit Union Loans 

Credit unions are nonprofit organizations owned and operated by their members. To become a credit union member, you may have to live within a particular area, work in a specific field, or meet other requirements, such as having a credit score within a certain range. 

How To Find Loans Near Me

What’s the best way to borrow money near you? If you are looking for face-to-face interaction during the lending process, you are most likely better off with visiting a brick-and-mortar lender and applying for a loan with an agent. 

If you are looking for the fastest way to get money, the quickest route would be to go with an online lender. With online loans, you can apply for and receive funding without ever having to leave your home. 

The Bottom Line: Fast Title Loans

Title loans are a short-term borrowing option that can be used when you run into a financial emergency. It’s vital to familiarize yourself with all the costs of title loans before using them. To make the right decision, inform yourself about title loan terms and repayment options. Then, create a detailed financial plan you’ll be able to follow. 

CreditNinja is an online lender that offers a safer, more affordable loan alternative to predatory title loans. CreditNinja believes that everybody, regardless of credit scores or financial history, deserves financial freedom and independence. To learn how you could get cash fast, fill out the CreditNinja online loan application today!

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