Can You Get a Title Loan Without a Car Title?

can-you-get-a-title-loan-without-a-car-titleWhat’s in a name? Surely, title lenders don’t mean that you need a literal car title in order to get a title loan … right?

You’re driving home from work one night when all of a sudden your engine light comes on. “This is fine,” you think. Then smoke starts pouring out from under your hood. “Okay, maybe this is not so fine.”

You pull over and call for a tow truck. They take it to the mechanic and a week later you get hit with the bill. It’s not pretty. Your savings are depleted and you’re not sure what you’re going to do. A title loan might be a good solution—you’re a two-car household, and the other one is running fine—but try as you might you cannot seem to find your car title.

Does lacking an actual car title mean that you can’t take out a title loan? Are title lenders really that literal? Are you good?

Okay. What is a title loan, again?

Title loans are a type of no credit check loan generally aimed at people with poor credit and low incomes. Because these types of loans don’t require a credit check as a part of their application process (hence the name), they can be a financial option for folks who are locked out from traditional personal loans. Other types of no credit check loans include payday loans, pawn shop loans, and cash advances.

Unlike payday loans, which are unsecured loans, title loans require the borrower to put up collateral as a part of the loan agreement. Namely, they require the borrower to put up their car, truck, or another motor vehicle. Title loans get their name from the title to the borrower’s car, which is what the lender uses to secure the loan.

Title loans are short-term loans, with a typical repayment term of only one month. Due to the collateral involved—which means a reduced level of risk for the lender—you can usually borrow more with a title loan than you can with a payday loan or cash advance loan. Even so, you’ll likely to only be approved for a fraction of what your vehicle is actually worth.

Now, the thing about collateral is that the lender gets to take it if the borrower can’t repay their loan. With a title loan, the lender’s claim on your car title means that they can repossess your vehicle and sell it in order to make up their losses. In some states, they even get to keep any additional profit that they make from the sale.

And when it comes to interest rates, title loans are much more expensive than a regular loan, and they even outdo many other bad credit loans. The typical interest rate for a one-month title loan is 25 percent, which comes out to an annual percentage rate of 300 percent. And since these loans are easily extended beyond their initial due date, those rates can add up fast.

Yes, you need a car title to get a title loan.

Look, when it comes to title loans, these lenders aren’t trying to trick you. Or rather, they might be trying to trick you—the lender could be hiding the true cost of their loan or opting you into automatic renewals or something like that—but when it comes to what you need in order to get one of these loans, they are being totally transparent.

Yes, you need your car title in order to take out a title loan. If you bought your car from any legit dealer, then you almost certainly have this document. On the other hand, if you bought your car as some kind of handshake deal with a neighbor or a friend from church and the title never got passed over, then a title loan simply ain’t in the cards for you.

The other thing you have to remember here is that you need to own the car free and clear. What does that mean? It’ means that you are the 100 percent bonafide owner of the vehicle in question. If you took out a loan to purchase that car and still haven’t paid it off? That means you can’t take out a title loan using that vehicle as collateral. Technically, you don’t fully own the car until any debt that also uses it as collateral is entirely paid off.

So if you don’t have the title to your car and you were banking on getting a title loan to finance that surprise emergency room bill, you are out of luck … except for the part where you are most definitely in luck.

Here’s why you shouldn’t be getting a title loan at all.

We mentioned up top that title loans are classified as “no credit check loans.” And that’s true. But there’s another loan category that they belong to as well: predatory loans. If you can’t tell from the name, these are loans that you want to avoid at all costs.

Predatory loans are financial products that take advantage of borrowers. They usually target people with poor credit scores, because those folks don’t have many other options. When a surprise expense arises, they can’t go to the bank to get a personal loan, and they probably can’t qualify for a credit card. They have nowhere else to turn.

These loans prey on their borrowers by trapping them in a cycle of debt. Through a combination of high rates, short terms, and unaffordable payments, predatory loans put people in a situation where they are constantly throwing money at the interest on their debt without ever getting closer to paying off the debt itself.

Here’s how title loans fit into that equation:

High Rates: As we mentioned earlier, title loans have an average APR of 300 percent. That means that a title loan that was outstanding for a year would accrue three dollars in interest for every dollar that was borrowed.

Short Terms: Title loans have an average repayment term of only one month. While this might seem convenient, given their high rates, it’s really a double-edged sword. It can be hard to pay off a loan so quickly, especially for low-income borrowers, which leads to borrowers extending the loan for an additional month. Every time the loan is extended, the cost of the loan rises.

Unaffordable Payments: Unlike traditional installment loans, which are paid 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 are difficult for many borrowers to manage, which leads to them rolling the loan over in order to save up more money. But since that extension leads to additional interest charges, the borrower ends up in the same situation all over again.

Lastly, the really dangerous thing about title loans is that failing to pay one back can lead to your car getting repossessed. In fact, a study from the Consumer Financial Protection Bureau (CFPB) found that a whopping one out of five title loans ends in repossession.

For many people, especially those living in more rural or suburban areas, losing their car means losing their transportation to and from work. To lose their car, then, would mean to lose their job as well.

It doesn’t matter whether you have your car title or not. No matter how much an unforeseen expense has got you sweating, we can assure you that a title loan is not a good answer to your money woes. To learn more about how to handle emergency bills, check out these related posts and articles from OppLoans:

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