The Value of Auto Title Loans

By Kari Johnson on February 14, 2011

If you are having financial problems, your credit score may be too low to receive the usual loans. In this scenario, it might be easier for you to get a secured loan, or a loan that is dependent on collateral. One such type of loan is an auto, or car, title loan.

Since your credit score is not a factor, these loans are really not difficult to qualify for. If you are the owner of a car that is already paid off, someone will give you a car title loan, probably in a very short amount of time. Some lenders may require the car to be highly insured, but this depends on who you are asking for the money. If more than one person is named on the car title, both parties will have to sign for the loan. 

These loans will generally be a payment of up to half the value of your car, even though the actual percentage varies. Keep in mind: the amount of this loan is not based on what you paid for your car, but on what the car would be worth on the current market.

But there is a high price attached. The loan is due within a month, and annual interest rates can reach to the triple digits.  Since you have signed your car as collateral, it can be taken away from you if you cannot afford to pay the loan back.

For these reasons, auto title loans have been marked as predatory by many unhappy borrowers, and are generally considered a bad idea, even though there are no national laws to protect consumers from them.  There are, fortunately, some state laws that can help consumers. In Virginia, a new law went into effect that caps interest rates and requires ten day notice before repossessing a car.  Missouri regulates the laws with a Finance Commission. A quick internet search should show you what laws exist in your state regarding these loans.

All in all, auto title loans are usually considered a bad idea. The interest rates are incredibly high, the loans must be repaid in a very short period of time, and if you end up unable to pay the loan back, the company can take your car. There are better loan options out there, even if you have a bad credit score.