Introduction to Car Title Loans

A car title loan is a common, although often misunderstood, way to use a vehicle title as collateral for a cash loan. Available in many U.S. states, this type of loan allows an individual borrow a specific amount of money with the understanding that a failure to repay the loan will result in the loss of ownership of his or her car.

The value of the loan obtained with a car title varies based on the age, condition and value of the vehicle, although other criteria may be used during the application process. First-time customers may need to provide more information than those who have received a loan before, but the application and vehicle appraisal processes can generally be completed rapidly.

A great deal of car title loans allow customers to remain in possession of their vehicle, but not its title, during the loan period; however, this can vary by municipality, so ensuring that the lender allows borrowers to continue driving the vehicle is an important factor to consider when applying for a loan.

Where to Obtain a Loan

Choosing a lender for a car title loan is process that should be taken seriously; just like shopping around to find the best price on a product or the best rate on a mortgage, those seeking a car title loan are encouraged to do their homework before applying or accepting the loan that they are considering. Because every lending institution has its own set of rules, policies and interest rates, clients must do their homework to ensure that they are satisfied with the terms of their loan.

Just like payday loans, future borrowers may be able to complete their loan application online, but other lenders will require the customer to visit a physical store to begin the process; however, many loans require a combination of the two, which means that applicants will be able to fill out their initial paperwork via the internet and finalize the details in-store. When searching for car title lenders online, pay attention to reviews from other customers, the lender's grade with the Better Business Bureau and any other pertinent information. Most importantly, be cautious about revealing personal or financial data until it has been determined that the lender is legitimate.

Employment Status, Qualifying Vehicles and Liens

Conventional, full-time employment always looks nice on a loan application, but is typically not required for car title loans. As long as the borrower can prove that he or she has a regular source of income, the application may be approved. Common types of alternative income that may be accepted alongside a vehicle title as collateral include retirement checks, disability payments or unemployment funds.

Those who are wondering if their vehicle qualifies as loan collateral will be pleased to learn that most do, but policies may be slightly different between lenders. The quickest way to find out if a car qualifies for a loan is to simply call the lender and ask. While a variety of reputable companies will accept any vehicle, some may impose restrictions based on the car's age, condition and mileage.

In general, a vehicle must be paid off to qualify as collateral on a car title loan; while some lenders may make exceptions for those who are very close to paying off their car loan, it is most common to accept only vehicles with free and clear titles. The borrower must also ensure that his or her car does not have a lien or judgement against it; if it does, receiving a loan with that particular vehicle as collateral is unlikely.

Credit Scores and Receiving Loan Funds

Because the title of an automobile serves as collateral for a car title loan, many lenders are flexible when it comes to the borrower's credit score; while an excellent credit score is likely to land a customer a better rate on any loan, those who are living with poor credit or none at all will not necessarily be turned away because of their score.

Lenders are willing to work with customers who lack a high credit score because the borrower's car title will allow them to take over ownership of the vehicle should the client become delinquent in his or her payments. That said, many car title loan agencies report on-time payments to the credit bureaus, which in turn may increase the borrower's credit score.

Many lenders can boast that their company complete the application and appraisal processes quickly, but others may take a bit longer to determine whether or not a client will receive the loan funds that he or she has requested. Additionally, it is important to remember that a loan approval may not guarantee that the funds will be available on the same day; each lender has different rules on the subject, making it that much more important to verify how long it will take to receive the cash.

A common misconception about car title loans implies that the funds must be used for a specific purpose; while some lenders will request to know why clients want a loan, they can generally spend it in whatever fashion that they deem appropriate. Some typical uses for a car title loan include medical or housing emergencies, unexpected living expenses or even something as simple as bridging the gap between a child's financial aid award and total college tuition; regardless of how the money is used, car title loans may be an excellent resource for those in search of a convenient loan.

Car Title Loans: Yes or No?

While borrowers should select the loan that is most appropriate for their needs and personal financial situation, a car title loan may be an excellent option with those who have poor credit, non-traditional income or other issues that make conventional lending a no-go for them. Regardless of which lender or loan type a customer chooses, he or she should take the time to fully understand the loan's terms, contract and potential penalties before committing to borrowing the money.