How Do Title Loans Work?

Shopping for a loan can feel like a long and complicated process. Thankfully, knowing important information like how different financial products work can help you make a final decision.

Learning all about how a finance option works can give you insights into the process you might undergo and what to expect. This can put you at ease and also make you informed enough to make a choice if you’re also considering other options.

Learn all about how title loans work, how the application process goes, how much you can borrow, and the benefits of this loan option.

What is a Title Loan?

This is a type of secured loan that uses the borrower’s vehicle title as collateral so the car owner can borrow against the equity in their car. The purpose of this loan is to help borrowers access the value of their car and turn it into money they can use now. The loan does this by using the title of your vehicle as security.

This loan gets its name because it uses the title of the borrower’s vehicle to secure the loan, so they are often associated with cars. But this type of loan can also use other vehicle titles as collateral, like motorcycles, ATVs, UTVs, toy haulers, RVs, campers, snowmobiles, boats, and even trailers. What type of titles a lender accepts generally depends on the lender and whether your title is free and clear.

How Title Loans Work

This is a fairly simple type of loan, though it does require a few more steps since collateral is involved. You’ll most likely need to visit the lending location with your vehicle and title in order to fill out an application. Then the lender might perform a quick inspection and evaluation of the vehicle’s market value. Once that process is done and the loan is approved, the borrower can then get the money they need.

Step 1: Submit an application

You might be able to start the application process online, but many title loans require a quick car inspection. This means you’ll most likely need to visit a lender location in person with your car to apply for this type of loan.

To apply for this type of loan, you may need to provide the following documents: 

• Basic contact information
• Government ID
• Social security number
• Check or bank statement
• Proof of income
• Vehicle
• Vehicle title

Be prepared to finish your application by bringing these potentially required items to the lending location with you. 

Step 2: Quick car inspection

This type of loan often requires a quick inspection to help assess the vehicle’s value. This is important since the market value of the car often helps determine the amount you can borrow.

Make sure your vehicle is in good condition and that your title is free and clear. By taking care of your car, you can also maintain its value and thus maintain the value you can access using your car. 

Step 3: If approved, drive away with cash

Many title loans will allow you to continue driving your car while you pay back what you borrowed. The lender might hold onto a copy of the car keys while they have a lien on the vehicle’s title. If you have questions or concerns about how this part of the loan process works, call a representative from your lender of choice and ask for more information. They’ll be more than happy to answer any questions you might have about how title loans work at this location.

How do online title loans work? Title loans involve a form of collateral with the title of your vehicle being a part of the loan’s security. This means the lender will need to see and possibly inspect this collateral before they can responsibly approve the loan. You may be able to start an application online, but will most likely still need to finish the application process at a physical lending location.

Do title loans affect your credit? In general, this type of loan doesn’t involve a hard credit check, meaning the application process won’t normally affect your credit score. You can also avoid any negative effects to your credit by making sure you make on-time payments. Consider your monthly budget whenever you’re considering a loan option to plan for loan payments and make sure you will be able to fit these payments into your budget.

How much can I borrow? How much you can borrow for this type of loan usually depends on your vehicle’s value. Every lender will be different, but title loan amounts are usually a percentage of your car’s value. For example, if your car is valued at $10,000 and your lender allows you to borrow 25% of that value, then you could get a $2,500 loan. Loan amounts are based on several factors and how much you can borrow will be determined on an individual basis.

How to Get a Title Loan

When shopping for a loan there are a few things you want to do before making a final decision.

First, consider your financial situation. Look at your monthly income, budget, and credit score. Whether you have good or bad credit might weigh into which loan options are available to you. Your monthly budget will also shed insights into whether you can afford to make loan payments right now.

Next, research lenders to make sure you pick a reputable, licensed lender with financial options that work for your financial situation. You want the best title loan for your needs, and researching multiple lenders to find someone trustworthy with great customer reviews can help.

Lastly, gather the documentation you might need for the application process. For this type of loan you might need your basic contact information, government ID, social security number, check or bank statement, proof of income, vehicle, and vehicle title.

The Benefits of Title Loans

Borrowers choose title loans because they come with many benefits like quick access to the cash you need, the ability to use the value of your car to secure a loan, the ability to keep driving your car, and flexible repayment options.

Quick Access to Cash

Title loans offer quick access to cash for those in need of immediate or emergency funds. The application process is also simple and fast, allowing borrowers to often get the money they need the same day they apply.

Access the Value of Your Car

This loan also allows borrowers to use the value of their car to get the money they need. Your vehicle is a financial asset that holds monetary value. When you need money quickly, this type of loan allows you to access that value to secure loan funds.

Keep Driving Your Car

One of the unique advantages is that generally borrowers can continue driving their vehicle while repaying the loan. Unlike pawn loans where the collateral (such as a car) is physically held by the lender, borrowers keep possession of their car so they can carry on with their daily activities.

Flexible Repayment Options

This loan often offers flexible repayment terms so borrowers can pay back what they borrow in convenient installments. What kind of payment plans are available for this type of loan might depend on the lender, but you will often be able to make a few conveniently scheduled payments to make repayments more manageable.