What you need to know to get title loans approved with ease

Title loans are also known as car title loans, pawn loans or secured loans. They are often characterized by a short amortization period and a small loan amount. Unlike other types of loans, title loans use your vehicle as collateral. When applying for a car title loan, some lenders typically skip the process of conducting a credit check or requiring proof of income or employment, even though the consumer may have a bad credit history.

As with most credit options available to people with bad credit, the harsh consequences and high costs often overshadow the good part of these loans. If you are considering applying for title loans, you need to know how they work, which we detail below:

This is how car title loans work

If you are looking for ways to secure a loan, you will likely come across various platforms that offer these services. However, the main question is how do you know the options that are safe and legitimate? Legitimate businesses usually have a conspicuous online presence and a physical office. They often require a valid photo ID, proof of insurance, and the vehicle registration document as compensation for the loan requested. Sometimes the lender may require you to provide your spare set of keys for your car. Their typical payment structure is often between 15 and 30 days and you can keep your car throughout the repayment process.

If you don’t pay off the debt before the allotted time, you often have the option of transferring your existing auto title loan to a new one at the cost of higher interest rates. A late payment may result in the lender impounding and selling your vehicle to cover the amount owed. Before applying for the loan, it is best to use a title loan calculator to determine the estimated loan payment and interest cost. Due to the high interest rate on title loans, they are outright banned in some states in the US. In others they have a maximum interest rate cap, while in others there are no regulations.

The amount you can borrow

Lenders typically offer 25% to 50% of your car’s value, and the loan often ranges from as little as $100 to as much as $10,000. However, the number varies depending on the lending company. Repayment can be made either online, in person or through an automated payment plan from your provided checking account.

Do Auto Title Loans Affect Your Credit Score?

In most cases, car title loans do not affect your credit score as there is usually no credit check during the application process. Most lenders will not notify the credit bureau of your payment, and if you don’t repay the loan, they will take your vehicle back and sell it rather than hiring a collection agency.

Pros and cons of car loans

Like all financial products, title loans have disadvantages and advantages. Here are a few things to note:


  • Easy to qualify: Regardless of your credit rating, you may qualify for a title loan provided you can provide your car title document as collateral and have sufficient income value to meet your lender’s requirements.
  • Fast Approval Process: Title loan applications usually don’t take long as they don’t do any credit checks.
  • Fast cash access: If you meet all the necessary requirements, you can walk out of the lender’s office with cash the same day.


  • You could lose your vehicle: The worst possible scenario with a title loan is that failure to repay the amount borrowed results in your lender impounding your vehicle. Based on the results of a published CFPB (Consumer Financial Protection Bureau) report, 20% of people who get a car title loan often lose their vehicle because they cannot repay the debt.
  • High interest rates and additional fees: Even with timely repayment, auto title loans have a higher interest rate compared to other loan alternatives. This is often because lenders accept bad credit. Late payment also incurs additional fees and interest, which can make it more difficult to repay the loan.
  • You can easily get into a difficult situation: According to the CFPB, over 80% of people who take out title loans get a new loan when the original loan matures because they cannot repay the first one. Over 50% of people who apply for auto title loans end up taking out up to four consecutive loans before being able to pay off the debt. Each new loan adds additional fees and interest that can further increase your debt.

While auto title loans are an easily accessible short-term way to borrow money, it’s important that you understand everything you need to know about this type of loan.

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