What Are Auto Money Title Loans?
An auto money title loan allows you to use your car’s title as collateral to borrow money, but you could lose your vehicle if you default. Learn more here.
Written by Talullah Blanco
Reviewed by Bellina Gaskey
Auto money title loans allow you to use your vehicle’s title as collateral to borrow money instead of your credit score. However, if you default on your loan, your vehicle could be repossessed.
Whether you need fast cash to cover unexpected expenses or looking to make a large purchase and don’t have the cash on hand, you can use your vehicle title (if you own the car outright) to get a fast-cash loan. However, auto money title loans have short loan periods with high interest rates, and you could risk losing your vehicle if you default. That’s why they are regulated and even banned in some states.
In this article, we’ll cover everything you should know about auto title loans, including how they work, the process of getting one, and even help you weigh the pros of cons. Let’s get started.
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How an auto title loan works
Auto money title loans are short-term loans (usually, 30 days or less) that use your car’s title as collateral. Unlike traditional bank loans, car title loans typically don’t require good credit to qualify—just a title.
You’ll need to have 100% ownership of your car’s title without any
liens
to get an auto money title loan from a lender. When you apply for an auto money title loan, you’ll need to bring your car, photo identification, proof of insurance, and of course your car title. If you are approved for an auto money title loan after the application process, you’ll be given a loan agreement with terms outlining the interest rates, fees, and deadline.
Once you’ve signed, you’ll temporarily give your car title to the lender and it will be returned once the loan is repaid in full. If you can’t pay back the secured loan by the due date, the car used as collateral could be seized by the lender.
MORE: Is an auto loan secured or unsecured?
How much can you borrow in a title loan?
Auto money title loans typically range from $100 to $10,000, but how much you can borrow will depend on a few factors. Learn more below.
Car value
One of the biggest factors title lenders use to determine the loan amount is the value of your car (or motorcycle). Lenders will typically give you a loan that is equal to 25% to 50% of your car’s value.
If you have an old car with high mileage and cosmetic damage, you’ll receive a smaller loan amount than someone borrowing against a brand-new car. You can use
Kelley Blue Book
to learn the fair market value of your vehicle and find out how much you could borrow in a title loan.Income
When you apply for an auto money title loan, you’ll need to report a source of monthly income to show proof that you can make the loan payments. The lender will cross-reference your source of income with your bank statements to confirm you receive the money on a regular basis and determine your loan amount.
Keep in mind, proof of income doesn’t always have to be a paycheck from a job. Lenders will consider alternative sources of income, such as Social Security benefits, inheritance, settlement, severance pay, and more.
Equity
Auto money title loans are based on the fact that you have to own the car outright. You won’t qualify to borrow any money in a car title loan without complete equity—even if you have some positive equity on your current
car loan
.Pros and cons of car title loans
Before you apply for an auto money title loan, it’s important to understand whether the benefits are worth the potential risks. We’ll go over the pros and cons below to help you decide if an auto money title loan is right for you.
Pros
Auto money title loans allow you to get money when you need it most (and quickly, too). Most lenders will offer same-day financing to borrowers. And since your car is being used as collateral, lenders don’t require a credit check either.
If you need money fast and have bad credit but can repay your loan in full, an auto money title loan may be your best option and is worth the potential risks.
Cons
These fast-cash loans typically come with a much higher interest rate than a traditional loan. With an auto money title loan you can expect a monthly interest rate of 25%, which is actually 300% when annualized.
And if you default on these high-interest loan payments, you could risk losing your vehicle altogether. Since the car is the collateral for the loan, the lender can size it to recoup their losses.
Are auto money title loans legal where you live?
If all is said and done and you still are considering getting an auto money title loan, you’ll need to find out if it is legal where you live.
Auto money title loans where the lender takes possession of your title are illegal in 29 states, including some of the most populous states like
Florida
, North Carolina
, Michigan
, Pennsylvania
, and New York
. These states deem these high-interest loans to be predatory and too risky for consumers. If you live in a state where title loans are illegal, you can try getting a personal loan instead, but you’ll need good credit and or a cosigner to qualify.
MORE: Personal loans vs. car loans: what’s the difference?
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What is the interest rate on a title loan?
The typical interest rate on a title loan is 25% per month, which comes out to 300% when annualized. For reference, most personal loans have a typical annual interest rate between 3% and 5%.
How do you get a title loan?
You’ll need to own your car title outright without any liens to qualify for a title loan. You’ll then complete an application online or in person and once you’re approved by a title lender, you’ll temporarily give them your car title in exchange for the loan.
Do title loans affect your credit?
No, title loans don’t typically impact your credit score. That’s because title lenders or title pawns don’t typically report to credit bureaus.
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