What is a Car Title Loan? & How to Get One
A car title loan is a popular type of loan vehicle owners may use to get cash when they're in need. It is one of several different types of loans available to individuals, with several perks as well as cons. But what is a car title loan? While the loans are easy to obtain, higher than average interest rates are noted with the loans, among other considerations to think about before applying. It is nice to know that the option is available when you need money, but it is important to use title loans responsibly as your vehicle is on the line! Oftentimes, car title loans are used when money is needed in a hurry or when the borrower lacks sufficient credit to obtain a traditional loan. Title loans require no credit checks and no waiting time in most cases. But exactly what is a car title loan?
How Car Title Loans Work
A car title loan is a loan given on the value of your vehicle in exchange for the title to secure repayment of the cash borrowed. The loan lender holds on to the title of the car until the loan value, plus a fee for interest, has been repaid. Most car title loans are repaid in small monthly amounts over the course of a few months' time, but if you can repay the loan before the maturity date, reduced interest rates are paid. Once the loan is repaid, you are free and clear and receive the title to your vehicle back. You're free to obtain title loans from one lender at a time, although you may obtain several loans throughout the year if need be, so long as you are able to repay them.
Car Title Loan Requirements
If you need cash and want to apply for a car title loan, ensuring that you meet the requirements to obtain the loan ahead of time will save headache and hassle. Title loans are available online as well as in person. Keep in mind that the requirements for an online title loan may vary from the information below.
What is needed to obtain a car title loan?
Applicants for a title loan must be at least 18 years of age to apply for or receive a title loan. You'll need a social security number and while a job is the most desirable option, you must also have a regular source of income. You will need to bring proof of that income. This is necessary to ensure that you are able to repay the money that you are borrowing. A driver's license or state ID is also required when completing an application. Be sure to bring in the names, addresses, and telephone numbers of two personal references.
Obviously you'll need a vehicle in order to get a car title loan. You must be the owner of the vehicle and in states where a car title is used as collateral, it must also be free and clear and in your name. You must be the sole owner of the vehicle, with only your name listed on the title.
Most car title loan lenders make loans on all makes and models of vehicles, but you should check with various lenders to ensure that your vehicle is eligible if you have a vehicle that is older than 15 years old. The amount of loan you are eligible for is dependent upon the value of the vehicle as well as state regulations.
Individuals that wish to apply for a title loan must reside in the state in which they are applying for the loan and may not be a part of any type of bankruptcy proceedings, whether seeking relief or as a debtor.
Members of the Marines Corps, Army Corps, Navy, Coast Guard, and Air Force are ineligible for a vehicle title loan, or a dependent of a member.
How to get a Car Title Loan
If you meet all of the requirements for a car title loan listed above, the next step in getting a car title loan is to find a lender. Many different car title loan lenders are out there and while they all offer practically the same service, comparing and doing your research before signing over your car title is imperative because they're not all created the same.
Car title loan lenders are available locally and online. Should you decide that you wish to apply for such a loan online, it is even more important to do your research due to an increased risk of scams.
When choosing a car title loan lender, the following qualities are essential to find
- Low interest rates - Although state regulations may allow a certain APR to be charged, this doesn't mean the lender has to change this much. Comparing options will ensure that you find a lender offering the best interest rates.
- Ease of Applying – Obtaining a car title loan should be a simple, hassle-free experience and the lender should start things off this way by making an easy application process for applicants.
- Fees - In addition to interest rates, car title loan lenders are allowed to charge borrowers various fees, including processing fees, documentation fees, etc. When comparing, evaluate these fees and select a company with the lowest possible rates and best service.
- Reputation – Individuals who've worked with a car title loan lending company in the past are the best to ask for information about their experience with the company. Any worthwhile lender will have earned an excellent reputation from those that they've served in the past.
Once a lender is found, the next step in obtaining your loan is the completion of an application. Make it easier to complete the application and have your personal information readily available. You'll need this information, including your social security number, VIN # of the vehicle, employer name and address, etc.
Your application is then reviewed and verified and a decision is based on your loan shortly thereafter. The actual amount of time that it takes to gain your approval varies from one lender to the next, but may take as little as 30 minutes with some lenders.
If you are approved for a title loan, you'll need to surrender the title of your vehicle as well as read over and sign and date a contract. The contract contains important information about the money that you've borrowed, fees, interest rates, etc., so make sure that you carefully read over this information before accepting a loan and signing on the dotted line. Remember that this contract is a binding agreement, and even if there are errors, you're stuck due to this fact.
Car Title Loan Regulations by State
Car title loans are regulated by federal laws and are not available in all states. Regulations are in place to protect consumers. Right now, most states offering car title loans charge an interest rate of at least 25% per much, equaling about 300% APR. In some cases this could mean repaying more than $5,000 in 30 days -or lose your vehicle! Regulations have been put into place to ensure that consumers are not taken advantage of and losing their means of transportation during one of these loan transactions.
There are currently 17 states that allow the loans, with APRs (for repayment) with triple-digits. Those states are:
- New Mexico
- South Dakota
- New Hampshire
There is no maximum amount on the cost of the car title line in several of these states. Furthermore, there are a four states that use loopholes to offer car title loans, but avoid consumer protection laws designed to protect those who are obtaining these loans. Those states are California, Kansas, Louisiana, and South Carolina.
The remaining states prohibit the use of car title loans. Those states are:
- North Carolina
- West Virginia
- North Dakota
- Rhode Island
Car Title Loan Laws
A breakdown of car title loans in states where they are available to borrowers:
- Alabama: 300% APR; One-month loan term
- Wisconsin: No cap APR; $25,000 max loan with loans up to 50% of value; up to 180 -days loan term
- Arizona: 204% APR
- Delaware: No Cap APR; 180-day loan term
- Illinois: No Cap APR
- Utah: No Cap APR; renewable loans; no cap loan value
- Georgia: 300% APR; 30-day loan term
- Idaho: No Cap APR; 30-day loan term
- Mississippi: 300% APR: $2,500 maximum loan; 30-day loan term with renew options
- Nevada: No Cap APR; 30-day loan term with six renewal options
- Missouri: No Cap APR; 30-day loan term with renewal options; $5,000 maximum loan
- Tennessee: 264% APR; 30-day loan term with renewal options; $2,500 maximum loan
- South Dakota: No Cap APR; 30-day loan term;
- New Mexico: No Cap APR; 30-day loan term; $2,500 maximum loan
- Texas: No Cap APR; 180-day maximum loan term; no cap on loan value
- New Hampshire: 300% APR; 30-day loan term with 10 renewals; $10,000 maximum loan
- Virginia: 264% APR; 120 days – 12 months' loan terms