What Are Car Title Loans And How Do They Work? (2024 Guide)

Affiliate Disclosure: Automoblog and its partners may earn a commission if you get an auto loan through the lenders outlined below. These commissions come to us at no additional cost to you. Our research team has carefully vetted dozens of auto lenders. See our Privacy Policy to learn more.

Crash Course:

Car title loans work by using your car as collateral for short-term financing.
Most vehicle title loans come with extremely high interest rates.
Lenders can repossess your car if you fail to repay your loan as agreed to.

Compare Auto Loan Rates

Compare which options fit your budget, credit score, and term length below.

Loan Term

All

All
36 to 72 months
48 to 84 months
24 to 84 months

Min. Credit Score

All

Brand

Min Cred Score

Min Rate Term

Min APR*

Features

Links

Used Car Loan

Min
Cred Score

500

Min
Rate Term

36 to 72 months

Min
APR*

3.99%

Great for customers with limited/no credit
Offers special military rates
A+ BBB rating

See Rates

Refinance Loan

Min
Cred Score

550

Min
Rate Term

48 to 84 months

Min
APR*

5.29%

Average monthly savings of $150
Work with personal loan concierge to compare options
A+ BBB Rating

See Rates

New Car Loan

Min
Cred Score

575

Min
Rate Term

24 to 84 months

Min
APR*

4.75%

Below-average credit scores
Great interest rates
Smooth and easy online experience

See Rates

Refinance Loan

Min
Cred Score

510

Min
Rate Term

24 to 84 months

Min
APR*

5.61%

No application fee
Lending platform that partners with banks
Approval and loan terms based on many variables, including education and employment

See Rates

If your bank account isn’t looking so great and you have bad credit, you may have considered a car title loan as a quick way to get extra cash. While car title loans may seem appealing, they can be extremely risky if you don’t have a solid grip on your finances.

This article will explain what car title loans are and how they work before weighing their benefits and drawbacks. To help customers make the best financing decisions, our research team has also searched the industry to identify the best auto loan rates and providers.

Table of Contents show

What Is a Car Title Loan?

A car title loan is a short-term secured loan where the amount you borrow depends on the value of your car. Also known as a title pawn, you borrow up to a specific amount or percentage of your vehicle’s value in exchange for the car title.

Auto title loans are typically only given to those who have paid off their vehicle in its entirety. However, some car lenders will allow you to take out a loan when your car is nearly paid off.

Main Types of Car Title Loans

There are two different categories of car title loans:

Single-payment loans: Single-payment title loans are short-term loans that borrowers have between 15 and 30 days to repay in one lump sum. If you don’t repay the balance by your due date, it will roll over to the next month and accrue additional interest.
Installment loans: These car title loans can be paid back with interest over three to six monthly payments, depending on the lender. However, repayment policies – and the penalties for not doing so on time – are nearly identical to single-payment loans.

Even though “car” is in the name, car title loans may also be available for motorcycles, boats, recreational vehicles (RVs), and all-terrain vehicles (ATVs).

How Do Car Title Loans Work?

Car title loans are a type of loan that lets you borrow money against the value of your car. Unlike payday loans which are unsecured, loans against your car title are secured by using your vehicle as collateral. As a result, most auto lenders don’t need to perform a credit check as part of the process.

These loans are typically for a relatively small amount of money and must be paid back in a short amount of time.

How Much Can You Borrow With a Car Title Loan?

Lenders will typically loan up to somewhere between 25% and 50% of the value of your vehicle in exchange for your title. The Pew Charitable Trusts reports that the average auto title loan amount is $1,000, but this can range anywhere from $100 to $10,000.

How Much Interest Do You Pay on a Car Title Loan?

Auto title loans tend to be high-interest loans. According to the Federal Trade Commission (FTC), the average fee is 25%, which is an annual percentage rate (APR) of about 300%. This can be very costly, even when borrowing a small amount of money.

Let’s say you take out a car title loan for $500 with a finance fee of 25%. Twenty-five percent of $500 is $125, which gets added to the final amount due. So, at the time of repayment, you would owe $625.

How Do You Get Your Car Title After Paying Off A Loan?

Once you pay off a car title loan, you can get your title back from the lender. To do this, you’ll need to notify your local department of motor vehicles (DMV) and submit any required paperwork.

Once you do this, your car’s title will be considered “free and clear.” This means that you have full ownership of your vehicle and the lender no longer has any claim to the title.

Show more Show less

Where To Find Car Title Loans

To get a car title loan, you’ll need to find a lender that specializes in payday alternative loans. Traditional lenders that offer auto purchase and refinance loans typically don’t offer this type of financing.

These days, the most common way to apply for a vehicle title loan is to do so online. A simple web search should bring up plenty of options. Some may offer lower fees than others, but expect that nearly all offers will come with high interest rates.

Some companies have local offices where you can apply in person. If you have specific questions, this can be a good chance to talk through details of the car title loan.

How To Get a Car Title Loan

The auto title loan application process is usually straightforward as long as you follow the steps outlined below:

Get the required documents: You’ll need a photo ID, proof of income, proof of insurance, and your car title to secure your auto title loan. Gather these documents before applying to ensure a smooth process.
Fill out your loan application: Lenders often have online applications to use, but you can also visit a physical location in person.
Hand over your title: If the lender approves your loan, you’ll need to hand over your car title to get your cash. You may also need to give over one set of keys. Many lenders offer same-day financing, meaning that you can get cash right away.

Are Car Title Loans a Good Idea?

A vehicle title loan is rarely going to be your best financial option. They typically come with some of the highest interest rates allowed under federal law, making them a very expensive way to borrow money. You also risk losing your car if you can’t repay the funds on time.

Risks of Auto Title Loans

If you’re unable to repay the car title loan, your lender may let you do a “rollover” in some cases. A rollover is when a lender allows you to keep the loan money for another 30 days but requires that you pay another monthly fee.

Rollovers are fairly common. In June 2019, the Consumer Financial Protection Bureau (CFPB) polled consumers who had secured auto title loans in the previous six months. It found that 83% of respondents still owed money on their loans.

The CFPB also reported that roughly 20% of borrowers experience repossession if their loans aren’t paid back in full. Car title lenders make most of their money by letting borrowers take out new loans to pay off existing ones, transforming these small loans into long-term debt.

Pros and Cons of Car Title Loans

Despite their many downsides, auto title loans do have a few advantages as a last resort. Below are the pros and cons of getting a car title loan:

Car Title Loan Pros	Car Title Loan Cons
No credit check means approval for borrowers with bad credit	Monthly payments can turn into long-term debt
You have access to quick cash	Your car could be repossessed
Late payments don’t impact your credit score	Interest rates are high compared to other options

Alternatives to Car Title Loans

Since the data behind car title loans is less than stellar, going another route is probably a smarter financial move. Here are some alternatives to putting up your car’s title:

Paycheck advance: If you’re in good standing with your employer, you may be able to get some of your pay early.
Friends and family: To avoid financial institutions altogether, try asking friends and family to set up a loan agreement with a payment plan. Be realistic about your ability to repay them since money issues could cause irreparable harm to your relationships.
Credit cards: Credit cards have set limits and you’ll be charged interest if you don’t pay your balance off by the end of the billing period. Even so, credit cards typically have lower interest rates than car title loans.
Personal loans: These installment loans can be used toward almost any financial need and are available through banks, credit unions, and online lenders. They often have repayment terms of one to five years, and their interest rates are far lower than those of car title loans.

Car Title Loans: Conclusion

Auto title loans come with lots of risks and very few upsides compared to other types of financing. If you have a clear title on your car, there are likely better loan options available. However, as a last resort, they can be a choice for fast cash if you need it.

If you decide to take on a vehicle title loan, make sure that you fully understand the costs involved and make sure to repay the balance plus interest when required. Failure to do so could leave you in a much worse financial position than you faced before the loan.

Recommendations for Auto Loans

Regardless of whether you’re financing a car or using one as collateral, it’s important to compare options to make sure you’re getting the best rate possible. It’s wise to read the terms of each loan and check for potential penalties you could face. You can also take advantage of the online prequalification process offered by many financial institutions.