Car Title Loans: Risks and Alternatives

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Car Title Loans Options and Risks
Title car loans are costly and could cause you to be in a cycle of debt. Consider other options.
By Sean Pyles Senior Writer | Personal financial and debt Sean Pyles leads podcasting at NerdWallet as the producer and host of NerdWallet's "Smart Money" podcast. On "Smart Money" Sean talks with Nerds on the NerdWallet Content team to answer the questions of listeners about their personal finances. With a focus on shrewd and practical advice on money, Sean provides real-world guidance that will help consumers improve in their finances. Beyond answering listeners' money concerns on "Smart Money," Sean also interviews guests who are not part of NerdWallet and creates special segments that explore subjects like the racial wealth gap as well as how to get started investing and the background for student loans.
Before Sean took over podcasting at NerdWallet, he covered topics related to consumer debt. His writings have appeared on USA Today, The New York Times and other publications. When when he's not writing about personal finance, Sean can be found playing in his garden, going for runs , and taking his dog for long walks. Sean is located at Ocean Shores, Washington.





22 July 2021


Edited by Kim Lowe Lead Assigning Editor The consumer lending Kim Lowe leads the personal loans editorial team. She joined NerdWallet following 15 years of managing the content of MSN.com that covered food, health, and travel. Kim began her career as a writer for publications covering mortgages food, restaurant and supermarket industries. Kim received her bachelor's degree in journalism from 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 -- often between $100 and $10,000 -- in exchange for the title of your vehicle as collateral. They're a form of secured loan, one backed by property the lender can accept if you fail to pay.
These loans can be costly due to the high cost of charges and annual percentage rates frequently exceeding 260%. If you're in a crunch to get cash, you may have better options, like seeking a from a credit union.
How do car title loans work?
A potential borrower goes toward the bank with the car as well as its title. The lender evaluates the car's value and offers the loan that is based on the percentage of that value. The median loan is $1000, according to the Pew Charitable Trusts. Borrowers are able to drive away with their money within less than an hour, however the lender keeps their title to secure the loan is paid back.
There are two types of car title loans:
Single-payment loans will require the borrower to pay with one payment. Typically, it is thirty days later. They typically have an APR of 300%.
Installment loans permit borrowers to make several installments, typically over three to six months, with an average APR of 259%.

Generallyspeaking, lenders of car titles are not as strict for potential customers, like not requiring credit checks or proof of income.
Nerdy Tip
An installment loan may be a more affordable method of borrowing money. These loans allow you to borrow amount at one time and then repay it with fixed monthly installments over the course of months or years, rather than weeks. You won't need to put up collateral as collateral. Moreover, loan amounts are generally greater as interest rates are usually lower. Most lenders require a credit check for applicants, however there are lenders who will accept applicants with poor credit.


The reasons why title loans are dangerous
Imagine the title of your car loans as payday loans' bully brother.
While their interest rates are less than those of mortgages, that can be as high as of 1,000 percent, car title loans' interest rates aren't cheap. The upper limit of "affordable" is typically thought to be 36% APR. The costs and cyclical borrowing costs associated with car title loans can make them more expensive.
If you aren't able to pay the amount agreed upon, you could be forced to forfeit your car. In reality, it's 20% of people who apply for a short-term, single-payment car title loan in accordance with an analysis by the Consumer Financial Protection Bureau.
Car title loans could also create a cycle of debt, the CFPB discovered. A vast majority of single-payment loan holders renew their car title loans repeatedly and incurring additional fees each time. Only 12% of single-payment borrowers repay without renewing the loan, according to the CFPB. The remaining third renew the loans at least seven times. If you take one $1,000 loan, that would mean at least $1,750 in fees alone.
Does the process of paying off the title loan improve your credit score?
In essence, no. The lender won't report your payments to the credit bureaus, which means that making payments on the loan doesn't increase your credit score. If you fail to pay the loan, the lender is likely to not 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 options
There are options for quick cash which cost lessand are also less risky as compared to a vehicle title loan.
Before you take out a title car loan:
Explore all options available: If none pan out, talk with your creditor to see what options you have, whether you can work out the payment plan or deal with the financial penalties of not making payments, for example, late fees.
Other alternatives to the high interest loans



1. Ask friends and family to help you with a loan through or a .


2. Seek assistance from .


3. Get a from a credit union.


4. Request from your employer an advance on your paycheck or a like Earnin.


5. Secure yourself with an item that you own.


6. Explore other methods to .








Compare the cost of taking the loan to not taking it: Figure out the overall expense of not having funds for your purpose and then compare it to the typical cost in fees and interest of the title of a car loan.
If you take out an auto title loan, carve out the space to repay it in the shortest time possible. This will let you control the costs and decrease the risk of losing your car.


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







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