How do title loans work? Car title loans let you get a cash loan for approximately 25% to 50% of your car’s value. The upside? You can get cash quickly without a credit check or a lengthy loan process. The downside? They’re known for being expensive, and you could lose your car if you don’t repay the loan on time.
This guide will pop the hood on car title loans and take a closer look at how they really work, plus explore some smarter ways to get cash instead.
MoneyLion’s Instacash® is not a loan but it could help you access up to $500 of your hard-earned cash before your next payday depending on your eligibility. No interest, no membership fees, and no credit check required.
Table of contents
What is a title loan? 🚗
A car title loan (also known as an auto title loan) is a short-term loan backed by a car title. According to the Federal Trade Commission, the average title loan has the following terms:
- Length: 15 to 30 days
- Amount: 25% to 50% of the car’s value
- Interest rate: Up to 25%
- Collateral: Backed by a car, truck, or other vehicle
Let’s take a closer look at how title loans work.
How do title loans work? 🤔
Car loans work by using the value of your vehicle to secure a short-term loan.
For example, if your car is worth $5,000, a lender might offer you a loan of between $1,250 and $2,500. Then, the lender holds onto your car’s title until the loan is paid off. If you don’t repay the loan, the lender has the legal right to repossess your car.
Let’s say you need $2,000 to pay this month’s rent. Here’s how a car title loan could help:
- You apply for a title loan with a 25% interest rate (also known as a finance fee).
- You give the lender the title of your car, and the lender gives you $2,000
- You repay the lender $2,500 before the loan is due. If you can’t repay, then the lender can repossess your car
How to obtain a title loan
Thinking about applying for a title loan? Here are all the steps that you should be prepared to take:
- Make sure a car title loan is right for you: To get approved, you usually need to own your vehicle outright and be able to provide proof of ownership, residence, and insurance.
- Research and compare lenders: Explore both local and online title loans and check each company’s reviews, fees, and repayment terms. Make sure the lender is licensed in your state and transparent about the total cost, including APR, late fees, and any lien or origination charges.
- Gather your documents and apply: Be prepared with your car title, ID, proof of income, proof of address, and insurance information. Once you apply, most lenders will inspect your vehicle, confirm your information, and then make a loan offer based on your car’s value and your ability to repay.
- Review and sign: Read every line of the contract so you understand the payment schedule, total repayment amount, fees, and repossession terms. Only sign once you’re confident you can make the payments and have copies of all documents for your records.
- Repay on time and reclaim your title: Stick to your payment schedule and contact the lender early if you’re struggling to pay; some may offer extensions or payment plans. Once your loan is fully paid, make sure the lender releases the lien and you get your title back in your name.
MoneyLion tip: Some lenders may want to hold onto your car, while others will let you keep using it. In general, title loans that don’t require the car are preferable, so you can continue using your vehicle.
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Pros and cons of title loans 🟢🔴
Title loans can be tempting, especially if you’re in a tight spot and need some cash. But it’s important to fully understand what you’re signing up for before you sign on the dotted line.
Here are the pros and cons of auto title loans:
| Pros | Cons |
| Quick access to cash: You can often get approved and receive money the same day, which can be helpful in an emergency. | High-interest rates: Title loans often come with steep interest rates that can make repayment expensive over time. |
| No credit check required: Title loan requirements are fairly lax. Approval is based on your vehicle’s value, not your credit score or income. | Risk of losing your vehicle: If you can’t repay the loan, the lender can repossess your car since it’s used as collateral. |
| You keep driving your car: You can still use your vehicle while repaying the loan, as long as payments are made on time. | Short repayment periods: Many auto title loans must be repaid within 30 days, which can make budgeting difficult. |
| Simple application process: Most lenders only require a title, proof of ownership, and a valid ID. | Hidden fees: Some lenders charge additional processing or late fees, which can add up quickly. |
| Available to people with limited options: Title loans can be accessible when traditional loans aren’t. | Can lead to a debt cycle: If you can’t repay on time, rolling over the loan can trap you in ongoing payments and growing interest. |
How much do title loans cost?
Car title loans are known for being expensive compared to other loans. Most lenders charge monthly interest rates between 10% and 25%, which can add up to an annual percentage rate (APR) of over 100%. For reference, most personal loans have interest rates of between 8% and 36%.
Assuming an interest rate of 25%, here’s how much you’d pay for title loans of different amounts:
| Interest rate | Amount borrowed | Loan cost |
| 25% | $1,000 | $250 |
| 25% | $2,000 | $500 |
| 25% | $3,000 | $750 |
| 25% | $4,000 | $1,000 |
| 25% | $5,000 | $1,250 |
You may also be on the hook for extra fees like processing fees, origination fees, late fees, or repossession fees.
Plus, title loans get even pricier if you don’t pay them back right away.
For example, if you borrow $1,000 against your car title at 20% interest per month, you’d owe $1,200 after just 30 days.
But what if you can’t repay that $1,200 and roll your loan over for another month?
Within 60 days, your balance would be up to $1,440 and would continue to keep spiraling upward the longer your delay.
That’s why it’s important to understand the true cost before borrowing and to explore lower-cost alternatives when possible.
Considerations before taking a title loan
Before taking a title loan, it’s important to understand the risks involved.
These loans often come with extremely high interest rates and short repayment periods, which can make them difficult to manage if you’re already tight on cash. If you miss payments, the lender can repossess your car, sometimes after just one default.
Always compare alternatives like personal loans, credit union options, or payment plans before using your vehicle as collateral.
Do title loans build your credit?
No, title loans typically do not build or hurt your credit score.
Title lenders usually don’t report your payments to credit bureaus, so on-time payments won’t help improve your score.
The good news? Title loans probably won’t hurt your score either. Most lenders do not run a hard inquiry on your credit score when you apply. And, if you default on the loan, the lender typically won’t report the delinquency. They’ll just repossess your vehicle.
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Alternatives to title loans
Remember, title loans are just one way to get cash. If you need cash quickly, these are some options you might want to explore:
🔄 MoneyLion’s Instacash: MoneyLion’s Instacash is not a loan, but it could help you access up to $500 of your hard-earned cash before your next payday depending on your eligibility. Instacash has no interest, no membership fees, and no credit check required.
🔄 Small personal loans: These are flexible loans that often have much lower interest rates than title loans. They also come with clear terms and steady monthly payments, so you always know what to expect.
🔄 Peer-to-peer (P2P) lending apps: These platforms connect borrowers directly with individual investors, often offering more flexible approval requirements than traditional banks.
🔄 Family and friend loans: Asking your friends or family for money is a great interest-free option, but it can also be potentially awkward.
🔄 Pick up a side hustle (many pay $500 in a week): A part-time gig or freelance project is a flexible way to bring in extra cash on your own schedule. Even dedicating a few hours a week can make a meaningful difference when covering unexpected expenses or stretching your budget between paychecks.
🔄 Payroll advance: Some employers allow you to access a portion of your earned wages before payday. It’s a simple, low-stress way to cover short-term expenses without high interest rates or lengthy approval steps.
🔄 Pawn shops: Pawn shops can help you get quick cash by using an item as collateral to secure a loan. The downside is that you’ll only get a fraction of the item’s value and, if you can’t repay the loan, you’ll lose the item.
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Car Title Loans: Pump the Brakes Before You Sign
Car title loans can seem like a fast fix when money’s tight, but they come with high interest, short payback windows, and the risk of losing your car if you can’t keep up.
Before putting your car on the line, consider exploring lower-cost options like personal loans. Remember, the best goal is to find a long-term solution, not a short-term fix.
Don’t let a quick loan drive off with your peace of mind. Smart options are just a few clicks away.
FAQs
Are title loans bad?
Car title loans can be a legitimate way to get cash quickly when you’re short on cash. However, they often come with high interest, short repayment windows, and the potential to lose your car if you can’t pay on time.
What is the most you can get from a title loan?
You can typically borrow between 25% to 50% of your car’s value. This usually translates to a few hundred to several thousand dollars. The exact amount depends on your vehicle’s worth, state laws, and the lender’s policies.
Is it possible to get 2 title loans?
Usually, no, most lenders only allow one title loan per vehicle since the car title can only be used as collateral for a single loan at a time. Trying to take out a second loan on the same car could violate your first loan agreement.
