Can You Get a Title Loan Without a Car Title?

Auto title loans are a form of fast cash; a personal loan that doesn’t always require a credit check or proof of income. If you have a clear car title available, meaning the car is yours, you can use it as collateral in the loan application process. The maximum loan amount will vary depending on the value of the car. That means you will not be able to get a title loan without a car title to use as collateral.  

Let’s review: What is a car title loan, again?

Title loans are a type of no credit check loan generally aimed at people with low incomes and less than perfect credit scores. As these loans don’t require a credit check as a part of their application process (hence the name), they can be an alternative financial option for folks who are excluded from traditional personal loans and in need of quick cash. Other types of no credit check cash loans include payday loans, pawn shop loans, and cash advances.

Unlike payday loans, which are unsecured, title loan companies require the borrower to provide collateral as a part of the loan agreement, be it the title to their car, truck, or other motor vehicle in exchange for cash, hence the name “title loan.” The title must be lien-free, which means the car has been paid off.

Title loan terms: How does repayment work?

Title loans are short-term loans, with a typical repayment term of one month. Due to the collateral involved, which reduces the level of risk for the lender, you may be able to borrow more money with a title loan than you can with a payday loan or cash advance loan. However, you are likely to receive a fraction of what your vehicle is actually worth.

There are some caveats with how title loans work:

Collateral

Here’s the thing about collateral: the lender keeps the vehicle if the borrower can’t repay their loan. Additionally, the lender’s claim on your car title gives them permission to repossess your vehicle and sell it in order to make up their losses. In states like Alabama, the lender may keep any additional profit they make from the sale. In states, such as California, the profit earned from the sale must be returned to the borrower. 

Interest rates

When comparing interest rates, title loans are much more expensive than regular loans; they may even surpass many other bad credit loans. According to the Federal Trade Commission, the typical interest rate for a one-month title loan is 25%, equivalent to an annual percentage rate of 300%. And since the borrower can easily extend these types of loans beyond their initial due date (for a cost), those rates and total loan amounts can accumulate quickly.

Again: Yes, you need a clear title to get a title loan

You need your car title in order to complete a successful title loan application. If you bought your car from any legitimate car dealer, then you almost certainly have this document. However, if you bought your car in a handshake deal with a neighbor or a friend and the title was never transferred to you, then a title loan is not an option.

Additionally, you have to remember that you need to own the car free and clear. What does that mean? You are 100% the bonafide owner of the vehicle title in question. If you took out a loan to purchase that car and still haven’t paid it off, you cannot obtain a title loan using that vehicle as collateral. Technically, you don’t fully own the car until the debt has been entirely paid off.

You may need another item to secure your loan: a form of ID, like a driver’s license. If you don't have one, it’s advisable to address it before seeking a title loan.

Risk vs. reward

To recap, here are the risks of using a title loan:

High Rates

As mentioned earlier, title loans have an average APR of 300%. An outstanding title loan for one year would accrue $3 in interest for every dollar that was borrowed which may not be helpful to your bank account.

Short Terms

Title loans tend to have a repayment term of about one month. While this might seem convenient, given their high interest rates, you are probably looking at a double-edged sword. It can be challenging to pay off a loan quickly, especially for low-income borrowers, which can lead to extending the loan. Note that every time a borrower extends the loan, the cost of the loan rises; it also wouldn’t be surprising to see an additional finance charge.

Unaffordable Payments

Unlike traditional installment loans, in which borrowers pay off a little bit at a time, title loans are designed to be paid off in a single lump sum. These “lump sum” payment terms can be challenging for many borrowers to manage, which leads to them rolling the loan over into consecutive months in order to save more money. But since that extension leads to additional interest charges and an overall larger debt, the borrowers end up in the same situation all over again.

Repossession: lastly, failing to pay back a title loan can lead to the repossession of your vehicle. According to the Center for Responsible Lending, one out of five title loans end in repossession.

Consider the repercussions

For many people, especially those living in more rural or suburban areas, losing their car could mean losing their transportation to and from work. To lose their car could potentially lead to losing their job.

It doesn’t matter whether you have your car title or not. No matter how much an unforeseen expense has got you sweating, obtaining a title loan may not be a good answer to your financial needs.