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Why You Shouldn’t Consider Getting a Car Title Loan

The need for urgent cash is what usually drives consumers to take out a car title loan, one of the easiest ways to get quick cash. However, they often miss the true cost of such loan. They fail to realize beforehand that the risks outweigh the advantages.

What are Car Title Loans?

Car title loans are secured loans that require your fully paid car as collateral. According to Prescott Financial, car title loan amounts often range from $175 to $2,500. Car title loans are short-term, lasting up to 30 days in general.

What makes car title loans impossible for many borrowers to pay off is the combination of the very short time for repayment and the very high APR or annual percentage rate which is usually a 3-digit figure. Not all states cap the rates, so some lenders charge up to 30 percent monthly interest rate which translates to 360% APR.

Aside from the exorbitant rates, car title lenders require borrowers to pay the loan origination fee. There’s no wonder why car title lenders are likened to predatory lenders that normally offer other cash services.

The Terms

To better understand what car title loans are and the risks they carry, let’s take a look at an example.

Let’s say you need $700 through a car title loan. In order to qualify, you need to hand your car’s title over to the lender. Remember that the loan should be secured by your car which should be completely paid to be acceptable as collateral. You also need to give the lender the spare car keys (which makes repossession easier for them).

Signing the loan contract means you are agreeing with the 30-day loan term, $15 origination fee and 30 percent monthly interest rate which translates to $210 interest. If you’re like most car title borrowers—having tight credit, difficult finances—paying off an expensive loan at such a short period of time is impossible.

However, lenders would often allow you to roll over the loan provided you have paid the interest charges. They can give you another 30 days. In most cases, state laws allow up to 4 rollovers only.


Car title loans may not be the best option around when you need cash urgently. Finance experts often suggest finding alternatives to expensive loans like approaching friends, relatives and family members first to borrow money. You can also keep an emergency fund or some sort. The money you keep will serve as your cushion when crisis strikes. It can eliminate the need to borrow money and allows you to protect your credit.

Car title lenders may be able to give you the cash you need fast and easy, especially with no credit check and very simple approval process, but these advantages unfortunately could not compensate for the amount of money you have to shell out and perhaps credit damage you could incur in the long run.

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