A car title loan can be a great source of cash, but it can be difficult to get if your car lien isn’t cleared. In fact, many lenders don’t typically allow borrowers to take out a title loan on a vehicle that still has yet to be fully paid off. However, there are some lenders who may be willing to provide a title loan despite there still being a car lien on the title with another lender.
For consumers who may be in this situation, there may be second car lien title loans available. Read on to find out what these are and if you’re eligible to get approved for one.
Key Points
- A second lien title loan is a type of financing in which the lender places a second lien on a vehicle’s title, behind an existing lien.
- Not all lenders offer such loans, given their higher risk.
- Second lien title loans come with higher rates, making them more expensive.
- Since your title collateralizes a second lien title loan, your car is at risk of repossession if you default on loan payments.
Can You Put A Second Lien On A Car?
A 2nd lien title loan may be available through private lenders in Canada. However, the rates on a second lien title loan may be much higher to offset the lender’s risk, making these types of loans more expensive.
That said, usually, lenders don’t want to have to compete with other lenders who may want to put a lien on the same title and try to claim possession of the same asset. For this reason, most lenders don’t usually agree to title loans with an existing car lien. Moreover, it’s important to remember that even if some lenders offer title loans with an existing lien on the car, your first lender may refuse.
What Is a Second Lien Title Loan?
A second lien title loan is a type of loan in which a lender places a second lien on a car’s title as collateral. In this case, the vehicle already has an existing lien on the title.
Since the first lienholder has first priority to recoup their funds in case of default, the second lien title loan lender is taking on more risk. Because of this, these types of loans typically come with higher interest rates and stricter terms.
| What Is A Car Lien? A car lien is basically the right for a person or entity to retain possession of your car until the debt is fully repaid. In the case of a car title loan, the lender would put a lien on the title until the loan has been paid off in full. With a car lien, the car serves as collateral and secures the loan, protecting the lender in case the borrower defaults on car loan payments. Once the loan has been repaid in full, it will be discharged, and the lien will be taken off the title. |
Can Your First Lender Stop You From Getting A Second Lien Title Loan?
You can always ask your original lender if they would be willing to extend a second lien on your title. That said, your first lender has the option to refuse any second liens on the title when they already have one in place. They may even specify this stipulation in the contract you signed with them from the get-go.
What Can You Do If Your First Lender Won’t Allow A Second Car Lien?
If your lender doesn’t agree to a second lien title loan, you may have to pay off whatever debt you owe first. If they don’t object, look to see if they have any specific requirements before they agree to a second lien on your car title.
Having said that, you are free to look elsewhere. Ask other lenders to see if there are any willing to extend a second lien title loan with no objection.
How To Apply For A Second Lien Title Loan
The process of applying for a second lien title loan is relatively the same as your first car lien title loan. Follow these steps:
Step 1: Shop Around For A Lender
Use an online loan comparison site like Loans Canada to find lenders that offer second lien title loans with loan requirements you can qualify for. You can use this site to pull up multiple lenders and compare their offers to find one that best suits your needs and budget.
Step 2: Apply For The Loan
Once you find a lender, visit their website or business and fill out an application. This should only take a few minutes online, over the phone, or at their nearest in-store location.
Step 3: Provide Your Documents
You’ll need to provide your lender with a variety of documents related to your vehicle, finances, and identity:
- Proof of Canadian residency and address, such as a recent utility bill
- Valid government photo identification, like a passport or driver’s license
- Proof of income, like your latest pay stubs and bank statements
- Vehicle title and registration card
- Vehicle Identification Number (VIN)
- License plate and odometer reading
- Pictures of the vehicle
Step 4: Sign The Agreement And Get Funded
If your second lien title loan is approved, you should get an email or call with an offer and a contract listing your potential loan amount, term, interest rate, and fees. Don’t forget to read everything carefully and only sign once you’re 100% satisfied.
Typically, you can sign electronically or in person and collect the funds using one of these options:
- Direct deposit
- Interac e-Transfer
- Cheque
- Cash
What Are The Requirements For A Title Loan?
To qualify for a title loan, you’ll need to meet the following criteria:
- Earn a steady income
- Work a secure job
- Be at least the age of majority in your province
- The title of your vehicle must be in your name and should not currently be used to secure another loan
- Be a resident of the province in which you are obtaining your title loan
- Have auto insurance for your vehicle
- Have not filed for bankruptcy in the recent past
- Have your vehicle inspected so the lender can verify its condition
Benefits Of A Second Car Lien Title Loan
Loans have certain risks, so it’s really important to make sure the pros outweigh the cons before you apply. For instance, here are some benefits of a second lien title loan:
- Qualifying Is Easy – As long as your car has enough equity in it to offer up as collateral, it shouldn’t be too difficult to qualify for a second lien title loan.
- No Credit Check – Many lenders don’t require a credit check since your car acts as collateral. This makes it a great option if you have poor credit, though having good credit can help you secure better interest rates. If you’re unsure of what your credit score is, check it out for free using Compare Hub.
- Receive Cash Quickly – Car title lenders are known to provide approvals and funding quickly. With the loan being secured against your car, it’s easier for the lender to assess your risk.
- Reasonable Interest Rates – Because your second lien title loan is secured, you may also be able to access better rates than you would with an unsecured loan.
Risks Of Getting A Title Loan With An Existing Car Lien
Despite their benefits, you should always be cautious when applying for a second lien title loan, because it can come with some pretty serious downsides too, such as:
- Potentially High Rates – While the rates could be lower than an unsecured personal loan, second lien title loan rates are still higher than other types of secured loans due to the elevated risk for the second lender.
- Your Car Could Be Seized – If you miss too many payments, your lender can repossess and sell your car to recover what you owe. And if the car doesn’t sell for enough, you’ll be on the hook for the remaining loan balance on both the first and second lien loans.
- It Can Be Tough To Find A Lender – Even though second lien title loans are available, they’re hard to find, as many lenders simply don’t offer them due to their high risk.
- Scamming Is Possible – Car title loans may be an easy way to access fast cash. However, predatory lenders often work in this space and may charge you illegal rates and high fees.
How Can You Check To See If There Is A Lien On Title?
Before buying a car, you may want to consider checking to ensure that the title is free and clear, and there are no liens on it.
To see if there is a lien on the title of a vehicle you want to buy, consider the following actions:
Ask The Seller
You may want to start out by first asking the seller if they know whether there’s a lien on title Ideally, they’ll be upfront and disclose this important information to you. If so, you can take the appropriate steps.
However, you should also do your due diligence to make sure the seller isn’t hiding anything or may be unaware of any issues on the title.
Check The Vehicle History Report
A vehicle history report includes details of a vehicle’s past, including information about liens on title. In addition, you’ll find information about previous accidents, past owners, and records of maintenance or repairs. This will give you the ability to make a more informed purchasing decision.
Keep in mind, however, that liens may not always be included on a vehicle history report. You might have to pay extra for a lien check when you access a vehicle history report.
Providers that offer vehicle history reports with lien checks include the following:
- Carfax Canada: $69.95 for a vehicle history report with VIN and lien check
- VinAudit Canada: $14.95 for a comprehensive vehicle history report (including lien check)
Check The Vehicle Identification Number (VIN)
A VIN is a 17-digit number that tells you about the vehicle’s history. A VIN is usually needed to get a car history report. You can find the VIN of a car on the driver’s side of the windshield or door jamb. Otherwise, you may find it on the ownership, insurance, or service paperwork.
Use A Title Company
Title agencies may check for liens on vehicles for you for a fee.
Learn more: How To Check If Your Car Has A Lien On It
Second Lien Title Loan Alternatives
While you might be able to find a lender who is willing to offer you a second lien title loan, it may not always be the best idea, as we’ve previously discussed.
Fortunately, there may be other alternatives to second title loan alternatives available to you:
Short-Term Personal Loans
Before you take out a second lien title loan at a high interest rate, consider taking out a short-term personal loan with a bank, credit union or alternative lender. Even the highest rate at a bank will still likely be lower than the rate you may be charged for a second lien title loan.
Debt Consolidation Loans
If you have many debts – many of which come with sky-high interest rates – then you might find that consolidating your debt will help you save money. With a debt consolidation loan, you’ll take out a larger loan at a lower interest rate to pay off all other loans you may have.
You will not only save money in interest, but you’ll find managing one loan a lot easier than managing several. And the money you free up that otherwise would have gone to paying more in interest can then be used to cover other expenses you have.
Credit Card Cash Advances
A credit card cash advance lets you withdraw money from your credit card account, either at a bank machine or from a bank teller. It’s convenient, as there’s no need to apply for a loan since you’ve already got access to your credit card account.
However, credit card cash advances come with high interest rates, which you’ll be charged for immediately. As such, you may only want to consider this option for emergencies.
Home Equity Loans Or HELOCs
If you own property, you can borrow against the equity you’ve accrued at a lower rate compared to second lien title loan. You can do this either through a home equity loan or home equity line of credit (HELOC).
- Home Equity Loan: With this option, you can borrow a lump sum of money against your home equity. Then, you make regular installment payments over a set term, much like a regular loan, until the loan is fully repaid.
- HELOC: This option allows you to withdraw money from your home equity on an as-needed basis, up to a set credit limit. It works like a revolving credit line, similar to a credit card. You’re only charged interest on the amount withdrawn. Once you repay what you’ve borrowed, you can tap into your credit line repeatedly.
Be Wary Of Car Lien Loan Scams
While second lien title loans may be helpful at providing you with the fast cash you need, it’s imperative to keep an eye out for predatory lenders who are only out there to scam unsuspecting borrowers. Here are some red flags that will alert you that you should steer clear of certain lenders and the car lien loans they offer:
They’re Not Transparent About Interest Rates
The interest rate is one of the more important terms of any loan. After all, it’s the interest rate that will dictate how expensive or affordable the loan will be. If the lender isn’t transparent about what the interest rate is, look elsewhere.
They Require Upfront Payment Or “Insurance”
Many predatory lenders make their money off exorbitant fees, many of which come in the form of “insurance.” If the lender requires an insurance fee to be paid upfront, this could be a sign of a scam.
They Guarantee Loan Approval
No lender can or should offer guaranteed approval. All loan applications must be vetted before any decision is made. If the lender guarantees that you’ll be approved before you even submit an application, look elsewhere.
Bottom Line
Second lien title loans can provide you with additional financing despite having an existing lien on your vehicle. However, these loans are not easily accessible, as not every lender provides them. Further, they come with higher risks and interest rates, as the lender providing them will assume more risk for being in a secondary lien position. Make sure to carefully consider the loan terms and possible risks associated with a second lien title loan before applying.
