Car title loans are becoming increasingly popular in recent years because they provide consumers with a way to get some extra cash quickly if they own a car. With economy as it’s been the past few years, many people find themselves with “too much month at the end of the money” making car title loans an easy option. Learn all the facts you need to know about using your car to secure a cash loan.
What Are Car Title Loans
Car title loans are financial agreements, typically short-term loans, between an auto owner and the lender. The lender provides cash to the auto owner using the consumer’s vehicle as collateral. The vehicle can be a car, truck, SUV, motor home or even a motorcycle as long as it has a clear title.
Some lenders will even allow a vehicle to be used if it already has a lien as long as there is still enough value left on the car. In this case, the lender of the car title loan will have the second lien on the vehicle. Consumers may be a car title loan at a lender’s location as well as online.
Requirements for a Car Title Loan
If you’re considering getting a car title loan, you may be required to provide some if not all of the following information.
- Contact information including name, address and phone number
- Title to the vehicle showing ownership
- Proof of identification showing your name matches the name on the vehicle title
- Current vehicle registration
- Proof of income so the lender knows you have means to pay
- Proof of vehicle insurance
- You financial institution where the money will be deposited
Borrowers may be required to provide a copy of the vehicle’s keys and names of one or two references.
How Much Will the Loan Cost?
You may be borrowing a small amount, but the amount you end up paying depends on the amount of interest you will be charged. Although the loan is typically paid within 30-60 days, the interest is based on an annual amount. This annual percentage rate or APR is based on the following four things:
- The amount you want to borrow
- The interest rate or finance charge the lender is charging
- The amount of any additional fees
- The term of the loan
Example: You borrow $1,000 for 60 days and the monthly interest is 25 percent. At the end of the 60 days, you will have to pay $1,500 ($1,000 x .25 = $250 x 2 = $500 interest plus $1,000 amount borrowed) plus any additional fees the lender may charge. Some lenders may allow the consumer to “roll over” the loan and additional 30 or 60 days if they cannot pay it off when the initial term is over,
According to the Federal Trade Commission (FTC), lenders of car title loans often charge 25 percent per month, which can equal an APR of about 300 percent or more. Lenders are required by law to let you know how much the loan will cost you so don’t be afraid to ask. The FTC also states that service members cannot be charged more than 36 percent interest. Car loans may be anywhere from $50 to $10,000 or more. The more value the car has, the higher the loan may be.
Laws Regarding Car Title Loans
In an attempt to protect consumers, there are specific laws the lenders of car title loans must follow. According to the Consumer Federation of America, car title loans are not legal in all states. In the states where they are allowed, there are certain limitations or requirements that may be state laws.
- Total amount borrowed
- Amount of interest charged
- Amount of fees charged
- Repossession practices
Some states that are not in the legal list may use loopholes to help consumers borrow money from a neighboring legal state. Always learn as much as possible about your state’s laws and requirements if you are considering a car title loan.