Car Title Loans: What You Need to Know Before You Borrow
Quick Answer
Car title loans let you borrow against your vehicle's value in exchange for handing over the title as collateral. They carry extremely high APRs, often 300 percent or more, and short repayment windows. If you cannot repay, the lender repossesses your car. The CFPB reports that most title loan borrowers renew their loans multiple times, paying far more in fees than they borrowed. Exhaust all alternatives before considering one.
Car title loans are marketed as quick cash for emergencies. They deliver on the speed promise but at a cost that traps many borrowers in a cycle of debt that ends with losing their vehicle.
How Car Title Loans Work
You bring your vehicle title to a lender and receive a loan, typically 25 to 50 percent of the vehicle's value. You hand over the title; the lender places a lien on it. You keep driving the car.
The loan is typically due in 30 days. The fee, usually $15 to $25 per $100 borrowed, translates to a 300 to 400 percent APR on a 30-day loan.
If you cannot repay in 30 days, most lenders offer a rollover: pay the fee and extend for another 30 days. The CFPB found that more than 80 percent of title loans are rolled over or renewed, meaning most borrowers pay the fee multiple times before paying off the principal.
If you ultimately cannot repay, the lender repossesses the car. The CFPB found that roughly 1 in 5 title loan borrowers has their vehicle repossessed.
The Real Cost
On a $1,000 title loan at $25 per $100 (25 percent for 30 days):
- Fee for 30 days: $250
- If rolled over 6 months: $1,500 in fees on a $1,000 loan
- Total paid to get the $1,000 back: $2,500
Before You Take a Title Loan
Exhaust these options first:
- Credit union emergency loans or Payday Alternative Loans (PALs): Capped at 28 percent APR at federal credit unions
- Personal loans from online lenders: Even subprime personal loans typically carry far lower APRs than title loans
- Employer payroll advance: Many employers will advance a paycheck
- Nonprofit emergency assistance: Local community organisations, churches, and government programmes often provide emergency funds for utilities, food, and rent
- Negotiate directly with whoever you owe: Creditors, landlords, and utilities often have hardship programmes
If You Already Have a Title Loan
Pay off the principal as quickly as possible, do not roll over repeatedly. Each rollover is a very expensive extension.
Contact the lender and ask whether they will accept a partial payment that reduces the principal. Some will.
If you are at risk of repossession, contact a nonprofit credit counsellor (NFCC at nfcc.org, 1-800-388-2227) for options.
Where It Is Regulated
Title loan regulations vary significantly by state. Some states have prohibited them; others cap rates or require installment structures rather than balloon payments. The CFPB has issued rules affecting certain title loan practices. Check your state attorney general's website for the current state of title loan regulation where you live.