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What’s A Car Title Loan And How Does It Work?

It is a known fact that every time you apply for a secured loan, you must submit a set of papers stating your collateral. Anything from your house, shop, resort, or car can be used as collateral. Different secured loans are named after the collateral used to procure that loan; one such loan is a title loan. A car title loan can be issued in your name if you have a car and its title. As easy as it may sound, car title loans have their own set of advantages and disadvantages.

A car title loan is one of the quick ways to get money when you are in a financial crisis. However, you must be thorough before applying for a car title loan. 

What is a car title loan?

If you are a car owner, you might be highly tempted to apply for a car title loan. It is a fast way to obtain easy credit. It has a short processing time, and lenders do not consider all the aspects while approving your car’s title loan. For one, your credit score will not be considered for the car title loan. Neither will it be affected even when you pay back your car title loan.

A car title loan usually has a high-interest rate. It also needs to be repaid within a pre-decided period. Lenders can take complete ownership of your car if you cannot repay your loan after the designated time. It is advised not to take more than one car title loan simultaneously if you’re not sure about being able to repay both on time.

How do car title loans work?

When applying for a car title loan, you submit your car title as collateral to the money lenders. You can apply for a loan anywhere up to a certain percentage of your overall vehicle’s worth. There are two ways in which you can repay your loan. The first option involves the repayment in full, along with the interest and fees within a month. The second option is to repay in installments. It can span for three to six months. 

For a car title loan to be approved, you must show the lender your valid ID proof, clear proof of insurance, and the second set of keys to your car. 

Apart from this, you should also know that state law governs the interest rates associated with a car title loan. Additionally, a late fee or penalty will be issued if you’re late in repayment of the loan. This can result in the loss of a small fortune. 

What are the demerits of a car title loan? 

As already stated, there is a potential downside to taking a car title loan. Some of these are: 

  • It has been observed by the Consumer Financial Protection Bureau (CFPB) that borrowers continue taking a series of loans to repay the older ones. It is a vicious cycle that can keep you indebted for long, even after you’ve repaid your loan’s initial amount.
  • With a short repayment period of 15-20 days or a month, it can become challenging for borrowers to repay the same. It doesn’t give you enough time to gather funds and repay in full. 
  • If you do not repay within the specified time, it can result in late fees or penalties. You can also be asked to hand over the ownership of your car. 


Obtaining a car title loan is easy and fast, and it can help you in times of a financial emergency or crisis. But it is crucial to analyze this loan’s pros and cons before applying for one. Even when you apply for the loan, stay up to date with your payments to avoid any negative consequences.

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