Finances are tight these days, and if you’re like the millions of Canadians who are living paycheque to paycheque, a car title loan can be a financial lifesaver. Car title loans let you borrow money using your vehicle as collateral, providing you with fast cash without the need for a lengthy loan application and approval process. Essentially, you can borrow money using your car.
If that sounds like something you may be interested in, be sure to understand the ins and outs of car title loans before signing on the dotted line.
Key Points
- A car title loan is a short-term loan that allows you to borrow money from your car’s equity, using your vehicle as collateral.
- Until you repay the car title loan, the lender will hold the title.
- You can use the funds from a car title loan to cover just about any expense.
- Typically, any financing on the car must be fully repaid to get approved for a car title loan.
- Since the car collateralizes the loan, there’s a risk of vehicle repossession if you fail to make loan payments.
What Is A Car Title Loan?
A car title loan is a short-term loan that lets you use your vehicle as collateral to borrow money. Until you fully repay the car title loan, your lender will hold the title to your vehicle. Typically, you need to own your vehicle outright, meaning you have no remaining balance on your car loan or liens against the title.
Your car collateralizes the loan, which is why these loans may be easily accessible, even for those with bad credit. However, if you miss payments, the lender may repossess your vehicle. These loans also tend to come with high interest rates, making them potentially expensive and risky.
Car Title Loan Features
The following are the key features of car title loans:
- Loan Amount. Lenders will typically lend up to 50% of your car’s value. However, loan amounts can be lower or higher, depending on the lender.
- Term Length. Car title loan terms are typically short, often requiring full repayment in as little as a few months to a year.
- Interest Rates. Lenders tend to charge high interest rates on car title loans compared to traditional loans.
- Funding Time. Loan applications for these types of loans are typically processed quickly, with funding to come shortly after, making them ideal for pressing financial needs.
Do I Still Own My Car If I Take Out A Car Title Loan?
You still own your car when you take out a car title loan, but the lender will hold a lien on title until you repay the car title loan. The lien gives the lender the right to legally take possession of the car if you stop making payments for any reason.
| What Is A Lien? The lien is what makes a secured car loan, secured. It is a type of security interest that is placed on the car. It’s meant to help ensure that the borrower will, in fact, make their loan payments on time. If the borrower stops making payments on their loan or cannot afford to pay the loan off in full, the lender can legally repossess the car and sell it to recoup the cost of the loan. |
Can You Get A Loan On Your Car Title?
Yes, you can get a loan secured by the title of your vehicle. Essentially, you’re borrowing against your vehicle’s equity. However, your ability to get approved for a car title loan depends on a few things, as you’ll need to meet certain criteria to be able to borrow money using your car, which we’ll get into below.
Borrow Up To $50,000
Car Title Loan Eligibility Requirements
Since your car is collateral for the loan, approval is usually easier than for an unsecured loan. These are some general requirements to get a car title loan.
- Have full insurance protection for your car.
- Your vehicle must be no more than 8 years old.
- You have to own the car completely. There cannot be any outstanding debt attached to your vehicle.
- You must be 18 or older and be in possession of a valid driver’s license.
- You must have all the appropriate registration papers for your vehicle.
Can I Get A Car Equity Loan If I Have Bad Credit?
If you have bad credit, an auto title loan is probably the easiest way to get a loan. Since you secure the loan with your vehicle, your application is less risky to the lending officer who is reviewing your file.
Can You Get A Title Loan On A Financed Car?
As mentioned earlier, you typically need to own your car outright to be eligible for a car title loan. That means any car loan you had to finance the vehicle’s purchase must be fully repaid.
That said, some lenders may be willing to provide second lien title loans, which are loans that let you borrow against your car even if you have not yet fully repaid your car loan. In this scenario, the lender providing the second lien title loan is second in line to the first lender who holds the original car loan. That means the second lienholder assumes more risk, which is why second lien title loans can be difficult to find and come with higher interest rates and stricter terms.
Learn more: Can I Get a Car Title Loan Without a Clear Title?
How To Get A Car Title Loan
To obtain a car title loan, follow these steps:
Step 1: Gather Your Documents
Before applying, gather all the documents necessary to apply for an auto title loan. Many applicants get rejected or have their application process delayed due to incomplete or missing documents.
What Documents Do You Need For Car Title Loans?
Car equity loans are pretty straightforward and you can apply online. You simply fill out a short loan application. Most lenders will require the following:
- Personal Identification – This includes documents to verify your name, address, and phone number. Lenders usually accept a driver’s license, passport, or some other government-issued photo ID.
- Financial Details – Some car title lenders may want to see proof that you earn enough to cover your loan payments. Documents to show your income can include bank statements or pay stubs.
- Vehicle Title Documents – One of the most important documents you will need to bring is your car title document. This is necessary to prove that you are the legal owner of the car.
- Car Insurance – Lenders require that you have insurance on your car, so you may need to purchase it and provide proof.
- Vehicle Details – You’ll need to provide information regarding your car’s make, model, year, and mileage.
- Vehicle Inspection – Your lender may also require a car appraisal to verify its condition and value.
Step 2: Find A Lender
Auto title loans can only be found with alternative lenders. Banks, and credit unions do not typically offer auto title loans.
To help you find an auto title lender with the best offers, you can use a loan comparison website like Loans Canada to get multiple quotes from different lenders using a single application.
Step 3: Complete The Application
After you review your offers, you can complete the application process with the lender of your choosing. After that, you’ll simply need to wait for approval, after which you should receive your within a few hours to a couple of days.
If you think that you need to know more about car loans and auto financing, we can help. Just click the button below to get the information you need.
What Are The Benefits Of Car Title Loans?
There are several benefits using cash value you already have but need to access, otherwise known as your car’s equity. That said, there are also some potential drawbacks to car title loans as well. Make sure you weigh the pros and cons of car title loans before applying:
| Pros | Cons |
| Apply online and get approved within hours or days | The car secures the loan, so if you stop making payments, the lender can seize it |
| Loan terms are short – typically between 3 months to 3 years | Higher rates compared to other secured loans |
| Online application or in-person | Extra fees add to the total cost of the loan |
| Good for bad credit scores | |
| No hard credit check | |
| No down payment required | |
| Usually a lower rate than a payday loan | |
| You still own and use your car |
Learn more about your rights and responsibilities as a borrower.
Tips On What To Watch Out For With Car Title Loans
While car title loans have numerous disadvantages, they can be overcome by doing the following:
- Read The Contract: Make sure you read the contract thoroughly and understand the consequences; namely, vehicle repossession if you fail to make payments.
- Understand All Costs: Many car title loan lenders also charge numerous fees that can quickly add to the cost of the loan. Some common ones include administrative fees, loan origination fees, and vehicle inspection fees.
- Choose A Shorter Term – Try to pay the loan off in the shortest amount of time, and avoid using this quick and easy financing option as a short-term solution to long-term financial problems.
- Do Your Due Diligence – If you are in a cash emergency and you intend to use this type of financing, a car title loan can be a good source of funding. Just make sure to shop around, read the fine print, and pay it back within the allotted time.
Bottom Line
Car title loans offer quick cash and can be relatively easy to get approved for, as long as you own your car outright. These loan types are especially helpful for those who have an urgent expense to cover and don’t have the time or the credit health to go the traditional loan route. However, these loans come with some risks and can be expensive, which is why it’s essential to do some homework on these loans to find out whether they suit your particular situation before applying. If you’re interested in more information or want to start the process, Loans Canada can help.
