What is a title loan & how does it work?

What is a title loan & how does it work?

car title loan
(© Vitalii Vodolazskyi – stock.adobe.com)

Have you approached conventional lenders to meet your short-term financial requirements? Yet they have turned your loan application down given your bad credit score? When established sources of finance fail, a title loan is what helps you in unforeseen finance-related situations. Over the years, it has become one of the secured loans worldwide. A title loan allows a borrower to get funds using his car title as collateral. In such credit sources, the lender takes into account the vehicle’s value and condition. Generally, title loan companies work with financial institutions that enable borrowers to avail loans. The best part about a title loan is that it is time-saving compared to other traditional options of finance. More often than not, the borrower receives an approved sum of the amount in his bank account within 24 hours.

Understanding the pros and cons of a title loan from the borrower’s point is a must before you get started. To make it easier for you, we have put together major benefits and downsides of this mode of finance:

Advantages of title loans

  • Car title loans do not follow cumbersome procedures. All you have to do is fill up an application to apply for the loan. Once done, it is either immediately accepted or accepted later with additional facts and details.
  • Borrowers with bad credit scores are also eligible to apply for title loans. Generally, the lenders are willing to offer loans if your financial statements show that you have a steady source of income.
  • Given that the lender puts a lien on the title of the car, the borrower has no restriction to use it. However, if the latter makes default in the payment, the lender takes over the possession of the vehicle.
  • It is an ideal and quick way to meet your financial obligations in the short term.

Drawbacks of title loans

  • Usually, title loans have an interest rate of high value. But some state laws such as title loans in Texas laws discourage lenders from charging an unreasonably high rate of interest on the borrowing amount.
  • Failure to make timely loan payments can attract additional fees and reductant charges over and above the loan balance. Thus, it is recommended to gain the trust of lenders to avoid such situations.

How does a title loan work?

The prerequisite to title loans is a loan application that consists of essential details about the borrower and the vehicle. Along with the application, you have to get the car, identity proof, pink slips to prove the car’s ownership, and other necessary documents like a driving license and bill of sales. Once the application is complete in all aspects, it is forwarded to the auto loan company. Following the approval, the agreed sum of money is credited to your bank account. Most lenders obtain information regarding your sources of income and monthly expenditures from your financial statements. If you are self-employed or a salaried person, your chances of seeking loan approval are more. The amount of money you can borrow depends upon the state and value of your vehicle. Usually, such loans are repaid within 30 days. But there is a concept called rolling over the loan that allows you to borrow the money for an additional one month with the lender’s prior permission. However, repeatedly rolling over the loan may result in non-payment of the loan amount. This could lead to repossession which means that the lender would retake the vehicle’s possession. Now the lender can sell off the car to fulfill his outstanding debt.

If you have plans to go for this option of finance, make sure to find a title loan company that is registered and certified under the laws of the state. With a plethora of title pawn firms, it is not easy to get one such company. However, with a bit of research, you can connect with an auto loan organization that provides you loans as and when you need them.



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