What is a Title Loan?

A title loan is a short-term loan that provides a borrower with funds while using their vehicle’s title as collateral.

These loans might be an option if you need to access cash in an emergency or to handle an expense in your budget. However, they may come with high fees, and if you don’t make timely payments, you might lose your vehicle.

This guide will help you learn how title loans generally work, what the requirements are and what other options you might consider.

How do title loans work?

Let’s look at the 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 (which must be free and clear of other liens), proof of insurance and a valid photo ID. Some lenders might require you to provide a duplicate pair of keys to the vehicle as well.

You can 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 do not require a credit check and 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.

Repayment terms

Title loans typically feature short repayment periods, often 15 – 30 days. Some lenders may also offer installment options.

Keep in mind, though, that the consequences of not repaying the full title loan amount may be costly. Title loans may feature high APRs, so if you’re unable to pay back the loan, the total amount you owe will grow quickly.

If the borrower remains unable to repay the amount borrowed, the lender might repossess the vehicle. Some lenders may even install GPS trackers or devices that prevent the vehicle from starting, making repossessions easier.

Title loan requirements

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 or equity, 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 to calculate how much they’re willing to lend you. The loan-to-value ratio 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 also 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 some alternatives:

• Personal loans: Many banks and credit unions offer personal loans that may be put toward a wide range of uses like home repairs or emergency funds.
• 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
• Family and friends: Reach out to your close friends or loved ones for financial assistance. Work with them to develop a repayment plan that works for everyone.

Are title loans legal in every state?

Regulations regarding title loans are not the same across the United States. Many states, like Washington, New York and South Carolina, only allow heavily regulated loans at lower amounts, or don’t allow them at all. Other states may feature regulations that require loans are structured as open-end credit loans or only offered for large amounts. 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 be a 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.