Car Title Loans The Risks and Alternatives

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Car Title Loans The Risks and Alternatives
Car title loans are expensive and can cause you to be in a cycle of debt. Consider alternative options.
Written by Sean Pyles Senior Writer | Personal finances, credit, and personal finance Sean Pyles leads podcasting at NerdWallet as the host and producer of the NerdWallet's "Smart Money" podcast. On "Smart Money," Sean talks with Nerds from NerdWallet's NerdWallet Content team to answer the questions of listeners about their personal finances. With a focus on thoughtful and actionable financial advice, Sean provides real-world guidance that can help consumers better in their finances. In addition to answering listeners' money questions on "Smart Money" Sean also interviews guests outside of NerdWallet and produces special segments on topics such as the racial gap in wealth and how to begin investing and the background for student loans.
Before Sean lead podcasting for NerdWallet, he covered topics related to consumer debt. His writing has been featured on USA Today, The New York Times as well as other publications. When he's not writing about personal finances, Sean can be found working in the garden, taking runs and taking his dog on long walks. He is based within Ocean Shores, Washington.





July 22, 2021


Written by Kim Lowe Lead Assigning Editor The consumer lending Kim Lowe leads the personal loans editorial team. Kim Lowe came to NerdWallet after 15 years in charge of the content of MSN.com which included travel, health and food. She started her career as a journalist for magazines which covered mortgages, supermarket and restaurant industries. Kim obtained an undergraduate degree in journalism at the University of Iowa and a Master of Business Administration from the University of Washington.







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Car title loans provide quick cash usually between $100 and $10,000to be exchanged the title of your car as collateral. They're a type of secured loan which is secured by property the lender can accept if you fail to pay.
These loans are costly, with hefty charges and annual percentage rates often topping 260 percentage. If you're struggling to get cash, you may have more options, such as asking for an or a credit union.
How car title loans work
A prospective borrower heads toward the bank with the vehicle and the title. The lender evaluates the car's value and offers the loan based on the percentage of that value. The typical loan is $1000, according to the Pew Charitable Trusts. Borrowers can drive away with their money in under an hour, but the lender keeps their vehicle as collateral until the loan is repaid.
There are two types of title car loans:
Single-payment loans will require the borrower to pay in one lump sum, usually 30 days later, and typically have an APR of 300%.
Installment loans let borrowers make multiple payments, usually spread over the course of three to six months with an average APR of 259%.

In general, lenders who lend on cars have fewer requirements for potential applicants, for example, not checking credit or requiring proof of income.
Nerdy Tip
A installment loan can be an affordable way to borrow money. These loans permit you to take out the cash in one go, then pay it back by fixed monthly installments over the course of months or years, in lieu of weekly. There is no need to provide collateral, and loan amounts are typically higher as interest rates are generally lower. The majority of lenders require a credit test to be able to approve your application, but there are lenders who will accept applicants with poor credit.


The reasons why title loans are high risk
Imagine the title of your car loans in the same way as payday loans' bully brother.
Although their rates of interest are less than those of , that can be as high as of 1,000 percent the car title loans their interest rates aren't cheap. The highest level of "affordable" is usually thought to be 36% APR. The fees and cyclical borrowing costs associated with title loans increase the risk of being costly.
And if you can't pay the amount agreed upon, you could be forced to forfeit your car. In fact, 20% of people who apply for a short-term, single-payment car title loan , according to an investigation by the Consumer Financial Protection Bureau.
Car title loans could also create a cycle of debt, the CFPB discovered. A majority of loan holders renew their car title loans repeatedly and incurring additional fees each time. Only 12% of single-payment loan borrowers pay back the loan according to the CFPB. A third of the remaining borrowers have renewed the loans at least seven times. If you take a $1,000 loan, that would mean at the very least $1,750 in fees.
Does paying off a title loan build your credit?
In short, no: The lender does not make payments available to credit bureaus, so making payments on the loan does not increase your credit score. If you fail to pay the loan, the lender will likely not be able to send your account to collections thereby damaging your credit score. Instead, it could simply take possession of your vehicle in order to settle the debt.
Car title loan alternatives
There are options for quick cash that are less expensive- and are less risky as compared to a car title loan.
Before you apply for a title car loan:
Pursue all other options If none of them work discuss with your creditor to determine if you can , work out an arrangement for payment or take care of the short-term financial consequences of not making payments, like late fees.
Other alternatives to the high interest loans



1. Ask family and friends to help you with the possibility of a loan via or .


2. Seek assistance from .


3. Get a from an institution like a credit union.


4. Request your employer to give you a paycheck advance or use a like Earnin.


5. Get a secured by an item that you own.


6. Find other strategies to .








The cost of taking the loan against the cost of not taking it. Work out the overall price of having the funds for your purpose and then compare it to the cost in charges and interest on a car title loan.
If you get the title of your car loan make sure you leave the room in to pay it back in the shortest time possible. This will help you manage the costs and decrease the risk of losing your car.


Author bios: Sean Pyles is the host and executive producer for NerdWallet's Smart Money podcast. His writing has appeared in The New York Times, USA Today and elsewhere.







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