Online Title Loans: Why you (probably) shouldn’t risk it

Online title loans are an easy and fast way to get money, but the risks involved make these loans more trouble than they are worth. Debt grows quickly and defaulting on your loan most likely means losing your only mode of transit. 

Title loans, sometimes referred to as car title loans, both online and from traditional stores, have long been the focus of regulatory action due to the cycle of debt these loans can cause. We strongly recommend using these loans only as a last resort.

How do online car title loans work?

Online car title loans are loans taken out using your motor vehicle as collateral. These loans are usually expected to be repaid within a month, with many lenders offering to extend this period by renewing or “rolling over” the loan. The renewals often come with high fees or interest rates adding on more debt to the original agreement.

Along with the risks to your credit, a car title loan can put your access to your workplace, school, or home at risk (due to using your car as collateral). Due to the risky nature of these loans, title loans are highly regulated or outright banned in nineteen states, not unlike payday loans and short-term loans. Getting a car title loan online is certainly an option but might not be the best one for you. 

A loan from Possible may be the friendliest option for you. Borrow up to $500 in minutes, repay the loan in multiple installments, and build credit history.

How do I qualify?

Title loans are often marketed to those with poor or little credit history, similar to bad credit loans. Title lenders tend not to check credit or accept very poor credit. The biggest factor when applying for a car title loan, is the market value of your vehicle. 

Lenders are only able to accept vehicles that are fully paid-off and are titled in your name. The loan amount you’re approved for and that you borrow is based on the market value of your car. Depending on the make, mileage and year of your vehicle, lenders usually value your car far below the market rate, extending maximum loan amounts of a few hundred to a couple thousand dollars.

Is it hard to get a title loan?

Loans are not just given out to everyone. The more expensive your loan is, the most hesitant your lender will be to let you borrow the money. Since cars can sometimes be expensive, it is no guarantee that you will be able to get title loans online.

If you have good credit, you should be able to get a car title loan fairly easily. However, if you have poor credit, getting a total loan online will be mjuch harder since lenders may not trust you as much. Likewise, if you have poor credit, you may not be able to get the exact loan amount you were hoping for, which can also cause some difficulties.

Do I need proof of income?

You do not necessarily need proof of income to get a car title loan online. While the majority of lenders prefer or even require that you show you are steadily receiving income, not every lender requires this. Some lenders understand you may be getting paid "under the table" or you are self-employed, and they are happy to work this out with you.

Be wary that not having to show income may come with other caveats such as a higher interest rate, depending on the lender. Always read the fine print!

Can I get a car title loan without a title?

You will need the title of your vehicle if you are hoping to get a title loan. This is not just because title is in the title of" title loan" (excuse the puns). To get a title loan, you need to have the title to be able to prove that you actually own your vehicle. If you can't show proof of owing your vehicle, the lender will not give you your money. Lenders need to be guaranteed they will be compensated if you fail to pay the loan and they cannot do this unless you have the title to your car.

What happens if I can’t pay?

Many lenders will continue to “roll-over” your loan amount. While this will give your more time to repay your auto title loan, your lender can claim your vehicle at any time after the term of your loan. This process can lead to a cycle of charges with roll-over fees deepening your debt. If you can, at least make a partial payment on your loan.

If you’re unable to repay your loan and the lender declines to extend your payment time, your vehicle (collateral) will be repossessed. Most lending companies will hire a third-party repossession agency to find and tow your vehicle. Repossession agents can take your car at any hour of the day without notice or warning. You may wake-up one morning or clock out of work only to find your vehicle gone.

In contrast, if you default on a payday loan, short-term loan, or a Possible loan, no collateral will be seized. These are unsecured loans so only your credit profile may be negatively impacted.

Title Loan Process

Hunt down information about your vehicle

Whether you are applying for a car title loan online or in a brick and mortar store, you will need to know the make, model, year, and mileage of your car. Depending on the lender, you may need proof that your vehicle is lien-free and fully paid-off. In other words, you must have a lien-free title and you should bring your certificate of title.

As with any other loan application, you will need to have your personal (such as your driver’s license) and banking information ready. When applying online, always make sure you are applying to a known and verified service.

Apply though your lender

Each lender will have their own process for applying. Some allow you to apply completely online while others will require an application over the phone after you have submitted your information through their website. Some type of online form or online request is common.

Receive your cash funds

The only real advantage of a car title loan is the speed at which you can receive your money. Online title lenders will often send your funds directly to your bank checking account or debit card as a "same day loan", while brick and mortar stores are quick to pay in cash during your first visit.

What are the risks and benefits of an online title loan?

Benefits

Fast money without credit

Like many other payday and short-term loans, a car title loan is intended to be used for small financial gaps, unexpected expenses, or money emergencies. With this is mind, lenders try to make the application process as quick and easy as possible and require no credit check. Applications are usually processed the same day, with your money arriving within 1-2 days.

You can continue using your car (sort-of)

Lenders are only really interested in selling your car if your loan remains unpaid, so you will be able to use your car even while your loan is open. Be careful though. While lenders may not be quick to repossess your car, the threat of repossession can cause immense pressure to repay or renew with added fees.

Risks

You may lose more than your car

Borrowing funds against your car can be much riskier than it seems. A 2016 report by the Consumer Financial Protection Bureau shows one in five borrowers have their vehicles repossessed by their title lender. Unless you live in a city with reliable mass-transit, you most likely rely on your vehicle to commute to work, shop for groceries, and for general transit. If losing your vehicle means losing your ability to earn income, buy food, or seek medical treatment, defaulting on a car title loan can lead to catastrophic financial trouble.

While repaying your loan, you may still be able to drive your car, but only at your lender’s discretion. Some brick and mortar-lenders will install tracking systems or ignition impairment devices to give your lender easy access to your vehicle should you default on your loan. Some lenders use these ignition devices as a “reminder system”, preventing you from starting your car until you’ve made a payment. Under these systems, you’re paying for access to your own vehicle. You will need to call your lender at their telephone number just to use your vehicle.

High interest, Short term, Bad deal

It’s easy to think of a title loan as borrowing against yourself. Your car has “value” and your loan simply gives you access to this value in the form of cash. While this description is accurate, it’s not quite correct. 

In the current market for title loans, lenders will only extend borrowers somewhere between 25% to 40% of what your vehicle is worth. If you’re really lucky, you may find a lender willing to extend up to 50% of your car’s value. 

What makes this a bad deal? Title lenders value your car based on its market value. If your car is worth $12,000 used, you may only be lent $5,000. Not only are you responsible for repaying this $5,000 back with fees, the remaining value of your car is forfeit should you default on your loan. 

Who are you really talking to?

Online car title loan lenders have become much more common as many payday, cash advance and short-term loan lenders have migrated some services out of brick and mortar stores. As with any business online, there are inherent risks.

It can be difficult to know exactly who you borrow money from. Terms, agreements, and fees can be hidden on pages that are difficult to find. Your personal and financial information can be compromised, either by your loan lender or simply a lack of security measures in their system.

A Cycle of Debt

Rolling over your loan can trigger an avalanche

While title loans may only seem dangerous to those who miss payments, A recent report by the CFPB shows this cycle is more of the “rule” than the exception when it comes to Title loans. According to the CFPB Only 12% of lenders pay off their loans without “renewing” their loan. That figure is worrying. 

Title loans are marketed as single payment loans, however, 80% of title loans are renewed by borrowers on their due date. These fees quickly add up turning what was originally a one-time emergency loan into long term and unaffordable loan. One third of lenders renew their loans more than 7 times! These customers make up over two thirds of the entire title loan customer base, trapped and paying ever-growing fees.

Missing or extending payments can be a real slippery slope. If you were to miss a payment and had to pay additional fees and interest, you might even have to take out another loan to help pay that off. You could fall into a debt cycle where you are constantly taking out more debt to pay back your current loans and credit. 

Regulations around these loans

Payday and title loans have been the target of recent regulation in many states. Title loans are outright banned in Colorado, Connecticut and Hawaii, among others, and the Arizona State legislature is moving forward with an initiative to ban title lending in 2020.

Other states have sought to more strongly regulate these title loans through interest caps and fee limits. In certain states, regulators require title lends to pay you, the borrower the difference of your loan and the sale price of your car if the loan is defaulted on.

Consider all other options

Personal loans

Instead of getting a title loan online, reach out to your bank, local credit union, or other lending services. A personal loans is more difficult to qualify for than payday or title loans and may have a longer application, but the interest rate and fees are extremely low when compared to other short term option. Usually, you’ll repay the loan in monthly payments.

Credit card cash advances

Cash advances through your credit card are an expensive way to have cash in hand, but are a good option before turning to Title loans. Most card vendors will charge a flat rate or percentage based on the cash amount you are withdrawing.

Installment loans

Installment loans can be a solid option for cash if your credit is lacking. These loans are highly structured, breaking your payments down into easier to manage installments. Since installment loan amounts are fixed, you avoid the risk of falling into a cycle of debt. A Possible loan is a type of installment loan where you can get up to $500 in minutes and build credit history – much better at improving long-term financial health.

Payday alternative loans

Many community banks, credit unions, and other financial institutions offer short-term lending options at extremely low rates. Compared to the often high cost of traditional payday loans, this alternative option can provide a secure and affordable way to cover an emergency. The only difficulty is in finding these loans. Payday Alternative loans (PAL’s) are comparatively new to the market and are difficult to find outside of a few major credit unions. You’ll likely need some proof of income to qualify.

Paycheck advance

Reach out to your employer. Most employers are willing and able to provide a paycheck advance if you fill out a request form. Paycheck advances can either come from earned wages or as an installment loan. An advance on earned wages is generally interest free – however since this amount is based on the work you’ve already done through a pay period, the amount of the cash advance may be small.

Your employer may also offer paycheck advances in the form of an installment plan. These advances are usually based on future work, with your payments being automatically deducted from your paycheck. While advances are less costly than a traditional payday loan, it’s important to balance your installment payments with other paycheck deductions.

Friends, family, and community

An often overlooked option formoney is the community around us. Lending from friends and family can be a great option, however it’s important to treat the loan as serious as you would from any other lender or financial institution. Lending can be emotional, “defaulting” on your loan with a friend may not damage your credit score but it will impact your relationship.  

When lending from someone you know, it’s best to formalize the process. Create a written loan agreement detailing when and how you will make your payments, what happens if you’re not able to make a payment, interest cost, and other important details. By agreeing to a formal loan agreement, the loan should feel fair to the lender and the borrower.  

Some community and faith-based organizations also offer low-interest or even no-interest lending options. Make sure to research city-run programs and lending options from local non-profits. If you are a member of a religious community, you may be able to receive help from those around you.

Final Thoughts 

Getting title loans online is certainly a fast way to get cash. If you have poor credit, these auto title loans might also be one of the only money you’ll be able to get. If you truly think you will be able to make all of your payments in full and on time, putting your vehicle title as collateral might not seem like that big of an issue for you. You will be able to apply for these loans and get them relatively fast. This aspect of these motor vehicle title loans is very appealing to many borrowers, especially if they are in need of quick cash. If you are in a tough financial situation and need cash for an emergency, these loans could help you. 

Despite many positive aspects, the risks of an online title loan seem to outweigh the benefits. The risk alone of having your vehicle title be used as collateral should have you think twice about getting one. Car lover or not, your car can really be your lifeline. Having a car to get to work, get groceries and countless other things is something we take for granted. Losing your car from failing to pay back a motor vehicle title loan can be devastating. Unless you have access to public transportation, living life without your car could be seriously difficult and stressful. Likewise, these loans are short but can hit you with very high interest and expensive late fees. Encountering these additional expenses could put you even more behind and put you in a cycle of debt. Overall, the risks that come with these loans are not worth it. There are simply too many other alternatives to these loans that could be much better for you if you are struggling. 

It’s important that you weigh these alternatives when looking to get a quick loan. There are many other ways to get cash quickly that don’t require you to put your car up for collateral. Cash advances, payday loans and installment loans from Possible, or lending from friends and family could be much more beneficial to you. While these still come with their own risks, they tend to be much lower than the risk of losing your car. However, car title loans and many of these loans can have predatory practices that can hurt you more than help you. Possible offers an alternative to that. We take pride in being an alternative to traditional lenders that don’t have their customers interests in mine. Our payday loans and installment loans are fast and offer lower APR and help you build your credit as you pay them off. We also allow our customers to extend their payments up to 29 days. Together, Possible can offer you a much safer, easier, and more forgiving loan compared to motor vehicle title loans.

Don’t want to use your car as collateral? Thinking of getting a loan from Possible instead? Download our app and get started today.