Using Your Car Title As Collateral To Get A Title Loan

Posted by Frank on October 2nd, 2019

If you borrow money through a credit card, you might not need a collateral as credit cards are not secured loans where the lender requires a collateral from the borrower. However, if you are trying to get physical cash, you will need to provide a collateral. A collateral is an asset that guarantees the loan, which gives your lender something to fall back on if you fail to repay the loan. If you fail to pay the loan, your lender will repossess the collateral through a legal process. 

Today, one of the easiest way for people to get loan especially emergency loan is through car title loan. Car title loans involve using the title of your car as collateral. 

How Title Loans work

Car title loans are secured loans and they are for short period of time. Title loan lenders are companies that give loans based on the value of your car and not based on your credit score. This is why they don’t carry out credit checks. As a way of managing the risk involved, these lenders charge high interest rates. Although, the interest amounts are capped by law, some lenders still go as far as charging up to 100% annual interest rate on loans. 

The way title loans work is that you leave your title with the lender while you are paying off the loan. Your lender places a lien on the title. The lien is lifted and your title is returned to you lien-free as soon as you completely pay off the loan. 

With car title loans, you risk losing your car if you fail to pay as the lender can decide to repossess your car. Hence, if you must go for a car title loan, make sure you look around for a good lender with reasonable deals before signing the dotted lines.   

Having the Correct Insurance

You have to get the right insurance in place for your car before getting a car title loan. If you have just a basic insurance policy, your lender might decide not to approve the loan. This is because in case of an accident, the basic car insurance will only cover damage to another person’s car and not yours. If you have the right insurance in place, you will need to add your lender as beneficiary on the insurance policy. This means that if your car is damaged in an accident, your lender will receive the insurance payout in order to ensure that they get value.   

Handing Over the Title

After you have chosen your preferred title loan company, with the right insurance policy in place, you will have to hand over your signed title to the lender. Your lender will sign the title as a lien holder. This means your loan company will assume possession of your car and also have the legal right to the car until you have fully paid off the loan. This means, your lender becomes a co-owner of the car and you can’t sell the car without their consent. 

You will continue to make monthly payments until your loan is fully paid off and your title is returned to you lien-free. 

Find out more at

Like it? Share it!


About the Author

Joined: September 16th, 2019
Articles Posted: 4

More by this author