Car Title Loans The Risks and Alternatives

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Car Title Loans The Risks and Alternatives
Car title loans are costly and could put you in a cycle of debt. Consider other options.
By Sean Pyles Senior Writer | Personal finances and financial debt Sean Pyles leads podcasting at NerdWallet as the producer and host of the NerdWallet's "Smart Money" podcast. The show "Smart Money" Sean talks with Nerds on the NerdWallet Content team to answer listeners' questions about personal finance. With a focus on thoughtful and actionable money advice, Sean provides real-world guidance that will help consumers improve the financial situation of their lives. In addition to answering listeners' financial questions on "Smart Money," Sean also interviews guests who are not part of NerdWallet and also creates special segments that explore subjects like the racial inequality gap, how to start investing and the background of student loans.
Before Sean lead podcasting for NerdWallet, he covered topics that dealt with consumer debt. His writing has been featured on USA Today, The New York Times as well as other publications. When Sean isn't writing about personal finance, Sean can be found working in his garden, going on walks, or taking his dog for long walks. He lives at Ocean Shores, Washington.





Jul 22, 2021


Edited by Kim Lowe Lead Assigning Editor The consumer lending Kim Lowe leads the personal loans editorial team. Kim Lowe came to NerdWallet in the last 15 years, after in charge of the content of MSN.com that covered travel, health and food. Her first job was as a journalist for publications that covered the mortgage as well as the restaurant, supermarket and mortgage industries. Kim obtained an undergraduate degree in journalism at The University of Iowa and a Master of Business Administration from the University of Washington.







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Car title loans offer you quick cash -- often between $100-$10,000- in exchange the title of your car as collateral. They're a type of secured loan which is secured by the property the lender is able to get if you don't pay.
These loans can be costly as they come with high fees and annual percentage rates often topping 260%. If you're in a crunch to get cash, you may have more options, such as seeking a from a credit union.
How do car title loans function?
A potential borrower comes toward the bank with their car and the title. The lender evaluates the car's value and offers a loan based on the percentage of that value. The median loan is $1,000 according to the Pew Charitable Trusts. The borrower can leave with their money in less than an hour, however the lender keeps their vehicle for collateral, until loan is paid back.
There are two types of title car loans:
Single-payment loans require borrowers to repay with one payment, usually thirty days later. They are typically averaging 300%.
Installment loans let borrowers make multiple payments, usually over three to six months with an average APR of 259%.

Generally, car title lenders are not as strict for potential applicants, for example, not checking credit or requiring documents of income.
Nerdy Tip
An installment loan may be a more affordable way to borrow money. These loans allow you to borrow cash in one go, then pay it back in fixed monthly payments over a period of months or years, instead of weeks. You don't have to provide collateral or collateral, and loan amounts are generally greater as interest rates are usually lower. The majority of lenders require a credit assessment to be able to approve your application, but there are lenders who will accept applicants with poor credit.


Why car title loans are high risk
Imagine car title loans as payday loans' bully brother.
While their interest rates are lower than those of mortgages, which can have APRs upward of 1,000 percent the car title loans have interest rates that are by no means low. The upper limit of "affordable" is usually thought to be 36 percent APR. The costs and cyclical borrowing costs associated with title loans make them even more costly.
And if you can't pay the amount agreed upon, you could be forced to forfeit your car. In reality, it's 20% of those who take out one-time, short-term title loan as per an analysis by the Consumer Financial Protection Bureau.
Title car loans can also lead to the cycle of debt the CFPB found. A majority of loan holders renew their car title loans multiple times, incurring fees each time. Just 12% of single-payment customers pay off their loan as per the CFPB. A third of the remaining borrowers have renewed their loans at least seven times. If you take one $1,000 loan, that would mean at the very least $1,750 in fees.
Do paying off a title loan build your credit?
In essence, no. The lender does not make payments available to credit bureaus, which means that paying the loan does not increase your credit score. If you don't make payments the loan, the lender will likely not send your account to collections which could hurt your credit -- it may simply repossess your car to satisfy the debt.
Car title loan alternative
There are options for quick cash which cost lessand are more secure than a traditional auto title loan.
Before taking out a title car loan:
Pursue all other options If none of them work, talk with your creditor and see if you can , work out an arrangement for payment or address the short-term financial consequences of not paying such as late fees.
Other alternatives to the high interest loans



1. Ask your family and friends for a loan through or a .


2. Ask for help from .


3. Find an institution like a credit union.


4. Ask your employer for an advance on your paycheck or a like Earnin.


5. Secure yourself with something you have.


6. Explore other methods to .








Compare the cost of using the loan against having it not taken: Figure out the total cost of not having the funds needed to fulfill your goal, then weigh it against the cost in fees and interest of the title of a car loan.
If you get a car title loan make sure you leave the room in to repay it as soon as you can. This will allow you to manage the expense and reduce the chance of having your car repossessed.


The author's bio: Sean Pyles is the host and executive producer for the NerdWallet's Smart Money podcast. His work has appeared on The New York Times, USA Today and elsewhere.







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