What is a Title Loan?
A common question for many borrowers looking for a way to borrow money quickly is “What is a Title Loan”? The simple answer is that a title loan is a way to borrow funds using your vehicle as collateral. The reality is that anything beyond this simple one sentence answer requires some explanation.
The fact is that title loans vary by state and by lender. This makes providing an accurate answer a bit more complicated.
The truthful answer to “what is a title loan?” is “it varies”. We do our best to provide a detailed answer to the question with the following variations accounted for:
- State – the state you live in often dictates how a title loan is defined.
- Lender – the lender you choose can also dictate the definition of the title loan.
- Vehicle – the vehicle you own has an affect on what a title loan is.
- Loan Amount – finally, the loan amount can determine what type of loan you get.
What is a Title Loan? – Depends on the State
Why does the state you live in have any bearing on the definition of a title loan? The simple answer is title loans are regulated at the state level and each state treats them differently. In fact, title loans are not permitted at all in some states. Others have different names for title loans (like title pawns and auto equity loans).
Understanding how your state treats title loans goes a long way towards understanding what a title loan is. With that said there are two high level types of title loans.
Title Loans with Single Payments
The first type of title loan is one with a single payment sue at the end of the loan. These are available in some states. They generally are for a very short term, 30 days. The entire loan amount, plus interest and fees, is due at the end of the loan.
To find out how much these loans cost you can use our single payment title loan calculator. We designed this calculator specifically for loans with one payment. One very important item to keep in mind is the “roll over” of these loans.
Often, lenders will provide the option of rolling over the loan for one or more loan terms should you be unable to make the full loan payment. Roll overs can get very costly in a short period of time. They can turn a seemingly affordable loan into a very expensive one.
Title Loans with Monthly Payments
The other type of title loan is one with monthly payments. These loans are similar to other loans with monthly payment (such as new car loans), with the main difference being the interest rate. If you live in a state that allows monthly payment loans this is most likely what you will end up with.
These loans tend to be easier to repay, since you have more time to do so. Each month a payment is made. Each payment contains a portion which is applied to the principal, which reduces the loan balance every month. This is illustrated in the payment schedule show when you use the car title loan calculator.
The one tactic to be aware of is making one of these loans for a longer than recommended period. Title loans are short term solutions, so making one for several years can defeat the purpose. This also results in increased interest charges. Often this increase in interest charges results in a very high loan cost.
Lender – How the Lender Factors into the Title Loan
After we account for the state, the next consideration is the lender. This adds a layer of complexity for those searching for a title loan. Some lenders advertise title loans but actually provide other loans in place of a title loan. These can include auto equity loans, payday loans, pink slip loans, title pawns, and a reange of other loans that lenders are calling title loans.
Instant Title Loans – the Facts
Many lenders advertise Instant Online Title Loans and 60 second title loans. The fact is that a true title loan is not instant and take significantly longer than 60 seconds. These lenders are likely offering other loans in place of title loans and simply calling them title loans. Either that or they are simply confusing borrowers.
The truth is that online title loans take a day or two to complete. Some can be funded the same day, many within 24 hours. In person title loans can be funded in 30 minutes if preparation for the loan is done completely. For instant online title loans the fastest funding is usually that day.
What is a Title Loan – Vehicle
Obviously the vehicle plays a major role in any title loan and may dictate the type of title loan you qualify for. Many lenders have year restrictions on the vehicles they will lend on. Others go by vehicle value. Our thought is vehicle value is more important than age. In fact, many classic cars can have more equity than newer vehicles. Another factor is the type of vehicle. Motorcycle title loans are not available from all lenders, for example.
Loan Amount
Finally, the actual title loan amount will also factor in to the type of loan a lender may provide. Title loan amounts tend to be tied to vehicle value, and you can usually borrow up to 50% of the vehicle value. There are numerous lenders advertising title loans but with very low maximums, $500 or so. These are likely not what we would normally call a title loan, but rather a vehicle equity loan or even a line of credit.
Conclusion
What is a title loan? The short answer is a way to borrow money using the equity in your vehicle as collateral. The true answer is more complicated and depends on a number of variables. Some you can control (like choice of lender), others you cannot (like state of residence).
If you are new to title loans take a bit of time and do some research. Try to find detailed and accurate sources of information.