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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, most 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.

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 You Get A Title Loan If There’s An Existing Car Lien?

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

However, some lenders do offer such loans. But 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. 

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 that’s the case, you may have to pay off whatever debt you owe first before they agree to a second lien title loan. 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.

Another title loan company can take the lien on your car title over by paying off the remaining balance owed to the current lien holder. They can do this by either:

  • Paying the remaining lien balance and giving you what’s left over in the loan, or
  • Allowing the current lien holder to stay and only agreeing to pay them if you default.

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 If you apply with a low income or a lot of pre-existing debt, lenders may charge higher interest rates than they will for regular loans. 
  • High Fees – Some lenders also charge tons of fees for second lien title loans. This can include fees for loan origination, document processing and much more. 
  • Your Car Could Be Seized – If you miss too many payments, your lender can repossess and sell your car to recover what you owe.  However, 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 in many parts of Canada, many lenders simply don’t offer them due to their high risk.
  • Scamming Is Possible Car title loans are 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 To Apply For A Second Lien Title Loan

Thankfully, applying for a second lien title loan involves almost the exact same process as your first car lien title loan did. In fact, it may even be easier, since all you have to do is:

Apply For The Loan

Start by going online and finding a reputable lender. Don’t just think about your interest rate. Make sure they’re offering favourable terms and conditions before you apply. 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.

Provide Your Documents

Although applying for a second lien title loan should be relatively easy, you may have to submit a variety of documents related to your vehicle, finances, and identity. Including:

  • Proof of Canadian residency and address, such as a recent utility bill 
  • Valid government identification with photo (passport, driver’s license, etc.)
  • Proof of income, like your latest pay stubs and bank statements
  • One or more personal references 
  • Vehicle title and registration card
  • Vehicle Identification Number (VIN)
  • License plate and odometer/mileage
  • Pictures of the vehicle

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   

Title Loan Requirements

A title loan is a type of loan where consumers use their cars as collateral for the loan. In exchange for the money being borrowed, the lender is allowed to place a lien on the car title.  Here the borrower temporarily surrenders the car title until the loan is repaid in full.

So, what is required to get approved for such a loan? Are you eligible for a title loan backed by your vehicle?

To find out, you’ll have to meet the following criteria:

  • You must be able to prove that your income is steady and your position is secure.
  • The title of your vehicle must be in your name and should not currently be used to secure another loan.
  • You are at least 18 years old.
  • Some lenders might require that you are a resident of the province in which you are obtaining your title loan.
  • Most lenders required that title loan borrowers have auto insurance for their vehicles.
  • Have not filed for bankruptcy in the recent past. 
  • Your vehicle might have to be inspected before you’re approved for a title loan in order to verify its condition.

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. If you fail to repay your title loan, your vehicle could be repossessed. Even if the title lender is the junior lienholder. Further, you’ll likely still have to continue to make payments to the other lender.

Another potential drawback of second lien title loans is the cost. The processing fees that are part of the loan application can be expensive. Plus, the interest rates are also quite high on title loans, especially second lien title loans compared to other loan types.

Here are some great alternatives to second title loan alternatives:

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’d probably 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.

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 they’re not 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.

Looking For A Short-Term Loan?

If you’re in need of some extra cash to help you deal with a hefty expense, Loans Canada can help. We’ll work with you to see what types of loans would be most suitable for your situation to ensure that you’re comfortable with the repayment terms. 

Car Lien FAQs

What happens if I can’t repay my second lien title loan?

A second lien title loan is a secured loan, so your lender can legally repossess your car and sell it at auction to recoup their losses if you default. If they can’t recover your entire debt at auction, you’ll probably still be on the hook for the remaining balance. Plus, they may add extra interest and penalty fees to your final debt due to your missed payments.

What does it mean when your car title is lien-free?

Your car title is only considered “lien-free” when you have no more unpaid loans or legal judgments against it. Essentially, it means you’ve paid your entire balance off and don’t owe any payments to a dealership, financial institution or another kind of lender. You own the title outright.

Can I get a second lien title loan with my original lender?

This depends on how your original lender operates, how good your finances are, and how valuable your car’s title is. For example, if you made all your previous payments as agreed, you still have healthy finances, and your car has enough equity left in it. They may offer you a second lien title loan. As long as they offer this type of product.

Bryan Daly avatar on Loans Canada
Bryan Daly

Bryan is a graduate of Dawson College and Concordia University. He has been writing for Loans Canada for five years, covering all things related to personal finance, and aims to pursue the craft of professional writing for many years to come. In his spare time, he maintains a passion for editing, writing screenplays, staying fit, and travelling the world in search of the coolest sights our planet has to offer.

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