Car Title Loans

What It Is

What is a car title loan?

A car title loan is a loan for a small amount of money and for a short time.

To get a car title loan, you give the lender the title to your vehicle – for example, your car, truck or motorcycle. You also pay the lender a fee to borrow the money. You usually have to repay the loan in 30 days.

Car title loans can be very expensive. If you cannot repay the money you owe, the lender can take your vehicle.

What are some other ways to borrow money?

You might be able to borrow money from:

  • family or friends
  • a bank or credit union
  • your credit card

You might ask for more time to pay your bills. You can talk to a credit counselor to get help.

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What To Know

How do car title loans work?

You can get a car title loan online or at a store. This is how they work:

  • Step 1: You show the lender:
    • your application
    • your car
    • the title to your car
    • your photo ID

Some lenders require an extra copy of your car keys or make you buy a roadside service plan.

  • Step 2: If the lender approves your loan, he gives you the money and keeps the title to your car.
  • Step 3: When it is time to repay the loan – usually in 30 days – you pay the lender the amount you borrowed – plus a monthly fee.

How much does a car title loan cost?

Lenders charge a monthly fee. This fee can be a lot – sometimes as much as 25% of the amount you borrow.

For Example

  • You want to borrow $1,000 for 30 days
  • The monthly fee is 25%
  • $1,000 x 25% = $250
  • The amount you owe after 30 days: $1,250

How do I compare costs?

Most loans have an annual percentage rate. This is also called the APR. The APR tells you how much it costs to borrow money for one year. The APR on car title loans can be very high.

When you get a car title loan, the lender must tell you the APR and the cost of the loan in dollars.

What is an APR?

APR is based on:

  • the amount of money you borrow
  • the monthly finance charge or interest rate
  • how much you pay in fees
  • for how long you borrow the money

For Example

  • You need to borrow $500. You plan to repay the money in one year.
  • You compare the costs of borrowing that money:
    • The bank or credit union has a loan with an APR of 7.5%
      • You will pay $21 in interest to borrow $500
    • A credit card has an APR of 20%
      • You will pay $56 in interest to borrow $500
    • A car title loan has an APR of 300%
      • You will pay $1,111 in interest to borrow $500

What happens if I can’t repay the lender when the money is due?

You might not be able to pay the lender when the money is due. The lender might let you borrow the money for another 30 days. This is called a “rollover,” or “rolling over” the loan. To roll over the loan, you will pay another monthly fee.

If you roll over the loan several times, you might pay a lot to borrow the money. Eventually, you might not be able to repay the lender.

What happens if I can never repay the lender?

If you cannot pay the lender the money you owe, he might take your car. This is called repossession. The lender may sell your car and keep the money.

If the lender takes your car, you might lose your only transportation. This could make it hard to get to work, school and other places you need to go.

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What To Do

A car title loan is a loan for a small amount of money and for a short time – usually 30 days. They can be very expensive. If you cannot pay back the lender, you might lose your car.

What should I do before I get a car title loan?

Before you get a car title loan, consider other choices:

  • Can I get a loan from a bank or credit union?
  • Can I get more time to pay my bills by talking with creditors or a credit counselor?
  • Do I have any money saved that I can use?
  • Can I borrow money from family or friends?
  • Can I use a credit card instead?

How do I choose which way to borrow money?

Compare the costs, if you have more than one option. For each choice, find out:

  • what is the APR?
  • what are the fees?
  • how soon must I repay the money?
  • what happens if I cannot repay?

Write the answers to these questions.  Decide which choice is best for you.

I decided to get a car title loan. What should I do?

  • ask the lender to tell you how much it will cost in dollars
  • ask the lender to tell you the APR
  • borrow only what you can repay by the date the loan is due
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