Cash on Credit

Title Loans

Also known as auto equity loans, title loans are another way to access modest amounts of cash relatively immediately. While these loans often get placed in the same category as cash advances and payday loans, they are a substantially different breed. For one, unlike most other forms of short-term borrowing services, title loans are secured. In other words, the loan is attached to collateral—in this case, your vehicle. Moreover, they may offer more favorable interest rates than many similar loans because the lender is taking less of a risk offering a secured loan. Below, we've dissected the title transfer process into a series of steps as a guide.

Obtaining a Title Loan: A Step-by-Step Guide

Borrowing is a relatively simple and straightforward, but you should familiarize yourself with the process beforehand to avoid any possible surprises down the road.

  1. Select a lender. Historically, you could only borrow at a brick-and-mortar establishment, but that has changed. Now, you have your pick of any local provider as well as the hundreds of providers online. As you choose your provider, compare eligibility criteria, interest rates, and the length of the term. Remember that most online providers typically take two to four days to process your funds once your package is received, assuming you have been approved. Finally, keep in mind that if you have a motorcycle or RV you wish to borrow against, not all providers will accept the titles to these vehicles as collateral.
  2. Complete the paperwork. Internet providers typically offer 100 percent online applications, so you can essentially complete the entire process without ever having to leave your home. Your lender will ask you questions about your vehicle, such as the year, make, and model; its VIN; and whether you have any liens against it. To obtain a loan, you must own your vehicle free and clear. The application materials will also likely ask you about your source(s) of income, checking account information, and so on. At this stage, your lender will also value your vehicle, typically using figures from the Kelley Blue Book. On average, providers offer loans of 55 percent of the vehicle's value, according to the Consumer Federation of America. This number can vary from anywhere between 25 and 75 percent, however.
  3. Provide the necessary items. Every lender is different, so this stage can vary tremendously depending on your provider. With some lenders, you will only need to sign and hand over the clear title to your vehicle in this step. Your lender will then retain possession of the title until the balance is repaid. Other lenders, however, might also require a copy of your car keys and/or photos of the vehicle.
  4. Receive your funds. With most advances, your lender will electronically transfer the money into your checking account. Although some providers offer smaller denominations, most tend to offer only larger amounts in order to avoid the rate caps imposed on payday-type loans by some states. This makes a title loan a good option for borrowers who need fairly sizable amounts of money on a short-term basis.
  5. Repay the balance, reclaim your title. Typically, a loan is due 30 days after disbursement. Some lenders offer longer terms, and some will allow borrowers to roll the balance over for another term after the initial one expires. At the end of your term, you will owe the balance, the interest, and any fees your lender charges. According to CFA, the average title loan has fees of $25 on top of interest charges, which providers typically quote as a monthly figure. CFA also reports that the average title loan has a monthly interest rate of 25 percent.

Consequences of Non-Payment

Keep in mind that if you fail to repay in full, your lender can repossess your vehicle. In some states, lenders are required to hold on to the vehicle for 30 days before selling it so the borrower has a chance to get it back by paying the loan's balance. In others, though, the care may be sold as soon as it is repossessed. Some states may also allow lenders to hold borrowers responsible for any deficiency between the sale price of their vehicles and the balance of the title loan. In most cases, however, most providers opt to take the borrower to court to obtain payment instead of repossessing the vehicle. Be sure to read your borrowing agreement thoroughly to understand what will happen in the event you cannot pay the loan back on time.