How Do Online Title Loans Work?

If you find yourself short on cash, you might look at the many online loan options. An online title loan is a secured loan that requires you to exchange your vehicle title for cash. As with other loans, a title loan may require a credit check and vehicle appraisal. While an online title loan may sound appealing, it’s important to consider a variety of other factors, including costs, repayment terms, and the potential to lose your vehicle.

If you already own your vehicle, you have a few more loan options than those who are financing or leasing a vehicle. Your car title gives you the option to get a special title loan. These title loans often come with high interest, but they can be helpful for some people who need cash quickly. If you’re willing to put your vehicle up as collateral, you can use this kind of loan to cover emergency costs. When you pay off the loan, you can get your car title back.

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If you find yourself in a tight financial spot, you might be considering an online title loan. If that’s the case, you may have questions. For example, “How do online title loans work?” When you have all this information, you can more easily determine if a title loan is right for you.

What Are Car Title Loans?

A car title loan is a loan secured by your vehicle’s value. The value of your car determines the monetary amount you can borrow from the lender. The amount can vary, so you could sign a lease for $200 or $10,000 based on your vehicle. You can get a car title loan online. You can apply for a loan through your bank or with an online lender. Many people pay back a title loan in just one month, but some repayment terms last months or even a year.

Who Is Eligible for Online Title Loans?

Car owners over the age of 18 may be eligible for online title loans. Even if you have poor or fair credit, you may be eligible for one of these loans. That’s why online car title loans can appear so convenient for people who need money quickly. Here’s what you need to apply:

Clear Title

The first thing you’ll need to apply for a car title loan is a clear title. That means your vehicle needs to be in your name, have no outstanding loan liens, and not have been declared a total loss. In some cases, you can get a loan if you have a salvage title. If this is the case, you may need to meet additional requirements to receive funds. You also can’t have another title loan claiming your vehicle.

Driver’s License

You’ll need to provide your driver’s license and other identifying information. Your ID will be used to prove that you’re the owner of the vehicle. It also confirms your address.

Tax Returns, Pay Stubs, or Proof of Income

In most cases, you’ll need to prove that you can pay back your loan. Proof of income comes in the form of tax returns or pay stubs. Each lender has different requirements for proving income. This information should be available during the application process.

Can You Get Online Title Loans without a Title?

If you don’t have your car’s title, you can’t get a title loan. The main function of a title loan is that you trade potential ownership of your vehicle in exchange for cash. If you don’t own your vehicle outright, you don’t have access to the title to hand it over. Technically, another party owns the vehicle. This also means you can’t get a title loan if you lease your vehicle.

What Are the Advantages of Online Title Loans?

The biggest advantage of securing an online title loan is that you can potentially cover an emergency expense. Online car title loans can seem like the most convenient option to get some fast cash. When the need pops up, you have access to money you may need quickly. Often, online title loans offer cash the same day you apply. Unlike with some other loans, you don’t have to wait long for funds.

Additionally, some lenders may not require a credit check because you’re putting up a vehicle as collateral. If you have poor credit, you may not be able to get other types of loans. This could mean that a title loan is your last resort.

What Are the Disadvantages of Online Title Loans?

One major disadvantage of getting an online title loan is the fact that it can create a difficult financial cycle that is hard to break. For instance, the annual percentage rate of a title loan can be extremely high. Some borrowers are paying well above 200 percent. This means you could be paying back much more than you borrowed, even by the end of a short loan term.

Of course, another major risk is that you could lose your vehicle. If you don’t make your payments or find yourself unable to pay off your loan, the lender will take ownership of your vehicle. Not only do they have the title, but they can also physically take your car to cover the cost of the loan.

You won’t necessarily receive a loan equal to the value your car. For example, just because your car is worth $6000 doesn’t mean you’ll get a title loan for $6000. You might get a loan for $1000. The loan you receive is based not only on your car’s value but also on state laws, the type of vehicle you own, and your income. In fact, the average auto title loan is about $1000, but some people receive as little as $100.

How Does a Title Loan Impact Your Car?

Although you no longer hold the title to your car, you can still drive it. As long as you make your regular payments, your ability to drive your car is not affected. If you aren’t able to make a payment, your lender may have the right to take possession of your vehicle. Your loan agreement will include more details.

How Can You Get an Online Title Loan?

For most borrowers, securing title loans online is simple. In fact, many borrowers find that it’s easier to get a title loan than it is to pay it off. If you’re thinking about getting a loan, here’s what the process looks like:

Check the Status of Your Car Title

First, you need to secure your car title. Not only must you own your car outright, but you also have to make sure that your title is clear with nothing preventing you from selling your vehicle. You must have physical possession of the car title to hand it over.

Apply for an Online Loan

Next, you’ll complete an online application. You’ll need to include some of your financial information as well as some other documents, like proof of auto insurance and proof of income. You also need to provide your driver’s license or photo ID.

In some cases, borrowers have to undergo a credit check. This isn’t always part of the deal, but you should prepare yourself for the possibility. Bad credit may not necessarily prevent you from getting a car title loan with an online lender.

Wait for a Vehicle Appraisal

After you submit your loan application, you have to wait for the lender to appraise your car. During this time, you may have to answer some questions about your vehicle. In some cases, the lender will send an appraiser to physically examine your car. The lender wants to know the exact value of your vehicle.

Since you’re placing your vehicle as collateral, you may also have to give the lender a copy of your car key. You might even have to allow them to place a device on your car so that they can track it. They may also install a device that disables your car if you miss a payment.

You’ll also hand over your vehicle title. In the event that you don’t pay off your loan, this is how the lender takes possession of it.

Sign a Contract and Receive Funds

When your loan is approved, you’ll sign the paperwork and provide your bank account information. It’s a good idea to read the fine print before you do this, as the document is legally binding. Then, you can simply wait for funds to hit your bank account.

Pay Off the Loan

Finally, you’ll start paying back the loan. In most cases, online car title loans are designed to last just one month. However, the lender may offer to roll over the loan so that you don’t have to pay back all the funds at once. This means that you have longer to pay off your loan. At the same time, this also means that your loan is accumulating interest at a high rate.

Keep in mind that not every lender will roll over your payments. You’ll need to get confirmation ahead of time that the loan will roll over. Otherwise, your account might show that you simply didn’t pay back the loan.

Do You Have to Show Proof of Income to Get a Title Loan?

You don’t have to show proof of income to get a car title loan in every case. This means that even if you’re unemployed or an independent contractor, you may still be able to get a title loan. The loan is secured with your vehicle and that may be enough for some lenders.

When you apply for a title loan, there is no guarantee that the online lender will check your credit. However, if the lender doesn’t ask for proof of income, they may run your credit. The lender will ask you to consent to a credit check.

What Other Loan Options Are Available?

If you need a short-term loan or want to cover some quick emergency expenses, you may wonder if it would be a better idea to apply for a different type of loan. Other loan options are available and may not require collateral depending on your credit score. They include:

Personal Loan

You may be able to apply for a secured or unsecured personal loan, which means the risk of losing property is low. You may also get a better interest rate with personal loans. If you have a great credit score, you can get a low-interest personal loan that covers emergency expenses.

Cash Advance

If you already have a credit card, you may instead get a cash advance. This is an unsecured line of credit that comes from the available credit on your card. While a cash advance can be expensive, you’re not going to lose your car if you’re unable to make a payment.

Are Online Title Loans Worth It?

Online title loans are often not worth it for car owners. In fact, some states don’t even allow auto title loans because they are so risky for many borrowers. Other states put limits on what kind of title loans consumers can get. If you aren’t sure if a title loan is a good option, research other loan options and interest rates before you apply for a car title loan online. You might also consider credit counseling.

Finance Editor

Jim Slavik is a financial services expert with 30 years of strategic and operational experience including leading underwriting, loan administration, customer service and collections. He has held C-suite credit operations roles for Fortune 100 and private equity companies for credit cards, personal loans, lease-to-own, auto loans, mortgages, and insurance for prime and sub-prime borrowers. 

Currently Mr. Slavik is an independent financial services consultant for private equity firms and a contributor for expert networks such as GLG, Guidepoint, and Level company amongst others.