Loan on a Car Title: What Is It? How Does It Work?

Did you know that the average cost of new vehicle ownership is now almost $10,000 a year? One reason for that is the continuous increase in their transaction prices. After all, cars in the US now sell for over $40,000 on average.

Fortunately, it’s also because of the value they hold that you can take out a loan on a car title.

This car title loan guide explains the basics of borrowing against your vehicle, so be sure to read on.

What Is a Loan on a Car Title?

A loan on a car title, also known as a car or auto title loan, is a short-term loan secured by a vehicle’s title. The title serves as collateral, guaranteeing the loan’s repayment if the borrower defaults.

Since a car title loan involves collateral, it’s usually easier to get than an unsecured loan. After all, the pledged property assures lenders they can get their money back even if you don’t pay back the loan.

How Does It Work?

A title loan allows you to borrow a percentage of your vehicle’s current market value. It depends on where you live, but the typical range is 25% to 50%. So if your car’s worth is $25,000, you might be able to borrow $6,250 to $12,500 from it.

Some US states restrict the amount that title lenders can issue to borrowers. Kansas is one example; here, lenders can only let you borrow up to $2,500, regardless of your car’s value. Higher limits are available in other states (i.e., California, where the minimum is $2,500 and there’s no max).

Once you agree to the loan terms, the lender places a lien (a legal claim) on your vehicle’s title. That stays on record until you pay the loan back in full.

Fortunately, some of the best car title loans don’t require you to surrender your vehicle. That means you can keep driving your car even while your loan is still active.

What Are the Application Requirements?

There must be no other liens on the vehicle for a car title loan application to push through. An example is an outstanding car loan you’ve taken out to finance the purchase of your ride. Americans owe more than $1.4 trillion in auto loan debts, and if you’re part of this group, you may not be able to get a title loan.

If the car you own is lien-free, though, then be sure your name is on its registration. Since you can keep driving your vehicle, you must also carry auto insurance to qualify for a title loan.

If you meet all the lender’s requirements, you can already apply for a loan in-store, online, or by phone. Not all lenders offer the last two, though, so be sure to check their site to confirm that they do.

Apply for Title Loans During Emergencies

As you can see, taking out a loan on a car title is a quick way to make use of the equity you have in your vehicle. It’s also easier to qualify for than unsecured loans, as it involves using your car as collateral. However, it usually comes with a higher interest rate, so it’s best to apply for one only if you’re in a real pinch.

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