How do title loans work?
Different lenders may have different requirements, but let’s look at the general process of obtaining a title loan, from application to repayment.
Application process
To apply for a title loan, you must provide the lender with the title to your vehicle, proof of insurance and a valid photo ID. Your title typically needs to be free and clear of any liens. Some lenders might require you to provide a duplicate pair of keys to the vehicle as well.
You may be able to apply by taking your vehicle directly to a lender or by submitting your information online.
Loan approval and funding
A lender typically offers money based on a percentage of your vehicle’s value. Title loans generally don’t require a credit check, so applying for one may have no impact on your credit score.
Once you’ve been approved for the loan and received the funds, you can continue to drive your vehicle as normal. The lender will keep your car title.
Repayment terms
Title loans typically feature short repayment periods, often 15-30 days. Some lenders may also offer installment options with longer repayment periods.
The consequences of not repaying the full title loan amount on time may be costly. Title loans may feature high annual percentage rates (APRs), so if you can’t meet the repayment deadline and need to renew or roll the balance over into a new loan, the total amount you owe will grow quickly.
If you’re unable to repay your loan in full, the lender might repossess the vehicle. Some lenders may even install GPS trackers or devices that prevent the vehicle from starting, making repossessions easier.
What do you need for a title loan?
Here’s what is generally required to apply for a title loan:
- A motor vehicle in your name. Usually this requires a vehicle with a lien-free title, but some lenders will accept your title if your loan is close to being completely paid off.
- A government-issued ID, like a driver’s license or passport
- Proof of income or ability to repay, like a W-2 or bank statement
- Proof of insurance for the vehicle
- Proof of address, if not included in other documents
Make sure to read the terms and conditions carefully to know exactly how much you’ll pay in interest and fees and how long you’ll have to pay off the loan. Many states have legal limits on how much interest lenders are allowed to charge on title loans.
How much can you get for a title loan?
Lenders use a metric called a loan-to-value ratio (LTV) to calculate how much they’re willing to lend you. The LTV is the amount of the loan divided by the vehicle’s market value. Typically, a title loan will amount to about 25-50% of your vehicle’s market value. A lender may look at your vehicle’s condition, mileage, year, make and model to assess the value.
Some states regulate or set limits on the amount lenders may offer with title loans.
Alternatives to title loans
Title loans may seem like a quick and easy way to receive funds, but the high interest rates and short repayment schedules may make them a risky choice. You may want to consider alternatives such as:
- Personal loans: Many banks and credit unions offer lower-interest personal loans that may be put toward a wide range of uses, such as home repairs or emergency expenses.
- Payday Alternative Loans: Federal credit unions offer Payday Alternative Loans (PALs) for small amounts with low application fees. You will likely need to be a member of the credit union for at least a month to qualify.
- Cash advances: Some credit cards offer cash advance services, allowing you to access cash quickly without opening a new account.
Are title loans legal in every state?
Regulations regarding title loans aren’t the same across the United States. Many states strictly regulate title loans, or don’t allow them at all.
Legal protections for borrowers, such as interest rate caps and laws regulating who receives surplus money after a lender sells a repossessed vehicle, also vary by state. Check your local regulations before applying.
Deciding whether to take out a title loan
While title loans may seem like a convenient source of funds in an emergency, there are many financial factors to consider. Take the time to read the fine print and understand the terms of any loan before signing, and make sure you can afford the interest. Shop around to find the best rate that fits into your budget. Understand your state and local regulations to avoid working with bad actors. You may also want to consider alternatives to title loans.
By keeping these factors in mind, you may be able to make an informed decision on whether a title loan is right for you.
Citi offers personal loans to both existing Citi customers and new Citi customers that meet specific eligibility criteria, including an established credit and income history along with additional factors determined by Citi. If you think you could benefit from a Citi Personal Loan, apply online today.
This article is for general educational purposes. It is not intended to provide financial. It also is not intended to describe any Citi product or service. You should refer to the terms and conditions financial institutions provide for various products..
