How they work, costs, alternatives

  • Title loans use your car as collateral, which means the lender can repossess your car if you don’t pay.
  • Title loans often have to be repaid within 15 to 30 days and charge interest rates of around 300%.
  • Alternatives to title loans include credit cards, personal loans, side jobs, and local charities.

A title loan is a short-term, high-interest loan that uses the title of your car as collateral when you borrow money. This means that the lender can repossess your car if you don’t repay your loan on time. Many title lenders do not consider your creditworthiness at all when making lending decisions.

If you’re in trouble, have bad credit, and need money fast, a title loan seems like an attractive way to get your money. However, title loans have significant disadvantages. Title loans are risky because they charge high fees and you risk losing your car if you default on payments.

Title lenders generally target borrowers with low credit ratings or minimal credit histories who may not otherwise qualify for cheaper credit.

“In an ideal world, nobody would take out a title loan,” he says Evan Gorenflo, Senior Financial Advisor with Personal Finance App Albert. “It’s not something you typically associate with progress or a financial goal. It’s more designed to help you in a desperate time.”

How much does a title loan cost?

Title loans generally have interest rates ranging from 200% to 300% APR. A title loan typically has a better interest rate than a payday loan, which can have an APR of 400% or more. However, the rate is significantly higher than personal loans or credit cards, which typically have a maximum APR of around 36%.

“Home loans are difficult because a lot of people rely on their cars to make money,” says Gorenflo. “In this situation you give up your title as collateral. Sometimes you give them a second set of keys for your car, they put GPS in your car in some cases, so you make it really easy for them to impound your car if you can’t pay it back.”

How Much Can You Borrow With a Title Loan?

The range you can borrow depends on your individual situation, but generally lenders will allow you to borrow anywhere from $100 to $10,000. The usual term of the loan is two weeks to one month, similar to a payday loan.

“There’s a limit to how much you can borrow,” says Gorenflo. “If your car is worth $10,000, they won’t let you borrow the whole thing. Sometimes it’s 25% of your equity cap. Some lenders actually require you to fully own your car before they give you a title loan. Each lender will work a little differently.”

Pros and cons of title loans

What are Alternatives to Title Loans?

If you need the money to pay for expenses like utility bills, credit card payments, or rent, try contacting your creditors to set up non-borrowing repayment plans. You never know what options are available to you unless you reach out and ask.

Other alternatives to title loans include asking friends for money, taking on rideshare side gigs, or reaching out to local charities or religious organizations. If you qualify, you may want to take out a credit card or personal loan with a lower APR than a title loan. You’re still borrowing money, but it’s costing you less interest overall.

“If you need a quick buck, if you need to make $200, you can do it in a weekend with Uber,” says Gorenflo. “Even if it means a bit more wear and tear on your car, it could definitely be worth it if you avoid a 300% interest loan.”

Virginia C. Taylor