Lenders typically require a clear title free of liens as part of their loan criteria. That means you’ll typically need to own your vehicle outright with no outstanding car loan balance remaining. However, it may be possible to find some lenders who are willing to provide borrowers with loans despite an existing lien still on title. That said, loan terms may be less favourable, with higher interest rates making these loans potentially more expensive.
Let’s take a closer look at car title loans without a clear title and the potential risks they come with to ensure you make an informed decision.
Key Points
- Generally, a clear title is required to get a title loan.
- You can use the title of your car as collateral for a title loan, and use the funds to cover various expenses.
- Keep in mind that your car title is at risk of repossession if you don’t make payments on the loan.
Can I Get A Car Title Loan If My Title Isn’t Clear?
Most lenders won’t issue a car title loan if there is a lien on title. Generally speaking, you’ll need a clear title to get approved for a title loan. That means you should have fully repaid your car loan by the time you apply for a title loan.
That said, there may be some lenders who offer second lien title loans. That means the lender will take second place behind the primary lender who holds the first lien. This puts the second lienholder at a greater risk if you default on the loan, as they will have to wait until the first lienholder is paid off before they can recoup their funds, if there’s enough left to repay them.
It’s this heightened risk that hinders many lenders from providing a car title loan if the title isn’t clear on the vehicle. And those who provide them will charge a higher interest rate to compensate for this added risk, making these title loans more expensive.
| What Is A Lien? A lien is a legal claim over an asset, such as a car, allowing lenders to secure debt repayment. It allows the lender to repossess the vehicle if the borrower fails to make their loan repayments. |
What Is A Car Title Loan?
A car title loan is a short-term loan that uses your vehicle’s title as collateral. The amount of money you borrow is based on your car’s value. The lender holds the title until the loan is paid off.
Car title loans may be relatively easy to access, but since your car backs the loan, you’re at risk of repossession if you fail to repay the loan.
How Much Can I Borrow With A Car Title Loan?
Lenders will typically lend up to 50% of the value of your car. That said, the loan amount can be a little lower or higher than this threshold, depending on the lender.
Learn more: Car Title Loans: How To Borrow With Your Car
Car Title Loan Requirements
One of the great things about title loans is the minimal requirements needed, compared to traditional loan criteria. That’s because they rely on your car’s value rather than your credit score.
To qualify for a car title loan, you’ll need to meet the following requirements:
- Canadian Citizen Or Permanent Resident. You’ll need to show photo ID that proves you are either a citizen or permanent resident of Canada.
- Age Of Majority. Your ID must also show that you are the age of majority in your province or territory before you apply for a car title loan.
- Proof Of Income. You’ll need to show the lender that you earn enough to cover your loan payments.
- Proof Of Employment. The lender will want to ensure that you are steadily employed with minimal risk that you will lose your job status in the near future.
- Own The Vehicle Outright. In order to get a title loan, you must own the vehicle outright. That means any financing that you accessed to cover the purchase of the vehicle must be fully repaid.
- Vehicle Inspection. The lender may want to have the vehicle inspected to assess its value.
Advantages And Disadvantages Of A Car Title Loan
Every form of financing has corresponding pros and cons, title loans are no different. As always, you should be sure to take the time to assess your current financial state and future goals when making any monetary decision.
Pros Of A Car Title Loan
The following are some of the perks of a car title loan:
- Lower Credit Requirements. Unlike most loans, you do not need to have good credit to get approved. Lenders rely more on the car title as collateral for the loan, so good credit is not typically necessary.
- Possible Better Rates. Compared to other non-traditional lending options, like payday loans, car title loans tend to have more affordable interest rates. However, rates for car title loans may be higher than other types of secured loans, so be sure to read the fine print.
- Fast Cash. The approval time is quick for car title loans. In fact, you can get approved the same day in some cases, depending on how and when you submit your loan application.
Cons Of A Car Title Loan
Consider the following potential drawbacks of car title loans before applying:
- Risk Losing Your Car. If you’re unable to repay the loan at some point, the lender has the right to repossess your car and sell it. A car is a necessity and required to earn a living for many people, be sure to consider this before risking losing your car with a title loan.
- Expensive. Even though title loans have better rates compared to other non-traditional lenders, they are still expensive compared to other types of financing on the market. There may also be additional fees to pay on top of the already expensive interest charges.
- Short Repayment Terms. Car title loans typically come with short terms, ranging from 3 months and 3 years. This can add a lot of pressure to pay off the loan within this tight timeframe.
Costs To Consider When Getting An Auto Title Loan
There are several costs associated with auto title loans. It’s helpful to familiarize yourself with the charges to better understand if you can afford to pay the loan. Here are the main factors to consider when calculating the cost of an auto title loan:
- Interest Rate. Auto title lenders can charge you up to 35% APR in Canada. This includes the fees and interest you’d pay for the loan. That said, the rate you’re charged will depend on your own specific financial and credit profile. The interest rate you’re charged will have a direct effect on the total loan cost.
- Fees. Be aware of all the fees an auto title lender can charge you. Typical fees include car title search fees, administration fees, loan origination fees, registration fees, and vehicle evaluation fees.
- Late Payment Penalties. If you miss your loan repayment due date, your lender may charge you interest or a penalty fee on the overdue amount.
- GPS Fees. Some lenders may charge you a fee to install a GPS device in your car. This is sometimes required by your lender so that if you default on your loan, they’ll have the ability to recoup payments by tracking your car and seizing it.
Can You Sell A Car With A Loan On It?
Selling a car with a loan on it is possible. If you decide to sell your car with a loan on it, it is important to remember that if payments to the lender stop, the car can still be repossessed, whether it is in your possession or the buyer you sold it to. That’s because the lender will have a lien on the car until the loan has been paid off.
Ways To Sell A Car With A Loan On It
There are two ways you can usually sell a car that still has a loan on it: privately or through a dealership. Either way, you’ll first need to pay off the remaining loan balance to clear the lien before ownership is transferred to the buyer.
- Private Sale. Depending on where you live in Canada, you may be required to disclose the existence of a lien on title before you sell privately. Regardless, it’s best to clear the lien first. Your lender will need to be paid off before they release the title, which would then allow you to transfer ownership to the buyer.
- Car Dealership. Another way to sell your car that you’re still financing is by trading in your car for another one. In this case, you may be able to roll your current car loan to a new car loan when you buy a new vehicle through the dealer.
How Do Car Title Loans Differ From Car Loans?
While both car title loans and car loans both involve a vehicle, they differ in key ways:
| Car Loans | Car Title Loans | |
| Ownership | The lender usually holds the title until the loan is repaid. | You must own the vehicle outright with a clear title (though some lenders might allow a lien to exist). |
| Purpose | To finance the purchase of a vehicle. | To get access to money to cover various expenses. |
| Interest Rates | Usually lower than car title loans. | Usually higher than car loans. |
Alternative Options To An Auto Title Loan When You Have No Title
If you have a car with no title, then you may want to consider some alternative financing options. These are some options you can use if you need cash quickly but have no car title and bad credit.
Personal Loans
A good alternative to auto title loans is a personal loan. Short-term installment loans can provide you with a similar financing structure in which you’ll have high rates and a short term, but you won’t have to provide collateral. Moreover, like an auto title loan, many short-term personal loan lenders will accept those with bad credit, provided that they meet their other requirements.
Home Equity Loans
If you need financing and own a home, consider using a home equity loan. These loans use the equity you have in your home as collateral for the loan. These loans typically have lower rates than title loans, making them more affordable.
Payday Loans
Payday loans are another option to auto title loans. Like an auto title loan, these loans are short-term and have very high interest rates. With a payday loan, you can get up to $1,500, which you must repay by your next payday.
These loans typically don’t require a credit check and provide funding within hours. However, due to the high interest rates and fees, this option should only be used as a last resort.
Auto Equity Loans
If you have trouble getting an auto title loan without a clear title, you could potentially get an auto equity loan. While auto title loans require you to own the car outright, an auto equity loan allows you to borrow against the equity in your car. Generally speaking, the amount you qualify for will never exceed the equity you own in your car.
Final Thoughts
If your car title is clear, you may be able to secure a car title loan to access funds needed to cover various expenses. However, if your car title isn’t clear, you likely won’t get approved for a title loan. The good news is that there are alternative options available if you have financial needs. Loans Canada can help you find the right product today to achieve your financial goals.
