How to Pawn Your Car and Still Drive
If you’re in need of money quickly, one option is a car title loan. Each state sets its own regulations regarding these loans, so they can vary quite a bit depending on what state you live in. While title loans and car title loans are the most common names for these loans, they’re also known as pink slip loans and auto pawn loans, the latter because in some states, pawn shops are the only lenders able to offer the loans.
So, if you’re wondering how to pawn car title and still drive, here is how car title loans work.
The Title Pawn Process
No matter where you get a title loan, the application process is fast and convenient. Approval rates tend to be very high, and there’s no credit check involved in the application process. You can usually get your money within about an hour of visiting the title loan company.
The basic requirements to get a title loan are a car in your name with a lien-free title and your government-issued ID. The ID is so the lender can comply with a federal regulation which requires all title loan borrowers to be at least 18 years old. The lender will look up your car in a vehicle value guide and then perform a quick inspection to determine its condition. They are then able to figure out the current market value of your car, which they use to determine how much they will lend you.
Maximum title loan amounts vary by state. Many states don’t put any restriction on how much you can borrow through a title loan. The amount can be as low as a few hundred dollars, but limits of several thousand dollars or higher are more common. Of course, your car needs to be worth enough if you want to borrow a high amount. Lenders will typically loan you about 30 to 50 percent of your car’s current market value at most, so they can recoup their losses if you default on your loan.
Handing Over Your Car Title
Considering the title is how to pawn car title and still drive, you may be asking where pawning your title comes in, and how you can still drive your car when you don’t have its title anymore.
Once the terms of the title loan are finalized, you must give the lender your car title for them to issue your loan. They hold on to your car title during the term of the loan. When you finish paying off your loan, you get your car title back.
There is one major issue with title loans, and that is interest rates. You pay for the convenience of a title loan with the interest that you pay. Many states don’t limit title loan interest rates at all, and those that do often allow lenders to charge a high amount, such as 25 percent per month, which is equivalent to an annual percentage yield (APR) of 300 percent. Get a $1,000 title loan for a month with that interest, and you’ll be expected to pay $1,250.
There are a select few states that limit title loan interest rates to a reasonable amount. Florida caps interest rates based on the loan amount, with the highest possible APR being 30 percent if the loan is $2,000 or less, then dropping to 24 percent for loans between $2,000 and $3,000 and 18 percent for loans over $3,000. Arkansas caps title loan APRs at 17 percent. These states are the exception, not the rule.
Title Pawn Terms
Title pawn terms are also set by the states. In most states, the title loan minimum or maximum will be 30 days, and 30 days tends to be the standard length of time that most lenders use. There are a few states that require longer minimum terms, such as 60 days.
If you don’t have the money to pay back your title loan on the due date, most states allow you to rollover the loan, which means you extend it by paying at least your interest charges. You then carry any unpaid loan principal amount to a new term with another interest charge.
Unfortunately, this results in many borrowers becoming trapped in a cycle of debt. They pay off only their interest every month because that’s all they can afford, and keep incurring new interest charges without ever making a dent in the loan principal.
If you default on your title loan by failing to pay the required amount on the due date, the lender can repossess and sell your car. Repossession laws also vary for each state. In some states, lenders must provide a grace period for you to catch up on the payment. In others, they can take your car immediately.
Obviously, there are risks involved with obtaining title loans. But if you want to know how to pawn car title and still drive, a title loan is the way to go, and it does have its benefits.
If you live in a state with a lower interest rate cap, borrowing a title loan isn’t as dangerous. Regardless of where you live, it’s important to borrow responsibly. Get a loan for as little as possible to minimize the amount of interest you pay, and make sure that you’ll be able to pay the loan back on the due date. You don’t want to end up in a debt cycle where you’re paying only your interest. Understand the terms of the loan before you borrow anything.
Title loans have their advantages and disadvantages. In fairness, they are very convenient to obtain and provide a loan option for consumers who don’t have the credit to get anything else. The combination of high interest rates and short terms result in a high cost, which is why you need to know what you’re getting into and have a plan for paying off the loan.