Car title loans are small secured loans that allow getting approved despite problems with credit score and credit history, which is typically unlikely to be approved by traditional lenders with strict financial requirements. An auto title loan is a quick solution to financial needs and the possibility to keep your car (if you repay your loan). Such loans belong to the category of secured loans because your property, namely your car, secures the borrowed amount.
Collateral reduces the risk of non-repayment, and the interest rates are not as high as payday loans. It is limited to a maximum of 60% APR. It helps borrowers to have bearable monthly payments.
To obtain an auto loan, your vehicle must be fully repaid, you must be a legal owner, and have no outstanding liens. This means the car you want to use as collateral must belong to you alone. If you bought it with the help of loan funds, it should be fully repaid first before you can apply for such a loan.
The loan period for car title loans is much more extended than payday loans, and auto title loans offer higher loan amounts based on vehicle inspection.
Car title loans work if your vehicle is not too old. Lenders reveal their criteria about the vehicle's model year as not older than a certain number of years. Typically, eight.
Even if no credit checks are necessary, lenders may check on your history of no accidents during driving because they are not interested that the property would be destroyed. Insurance can offset this risk for the lender, but it increases the cost of the loan.
The procedure usually starts with the application to the lender, followed by the verification of your documents (including registration papers, driver's license, personal identification, and all the documents required by the lender for the loan) and title, and the evaluation of your vehicle and finally the approval and disbursement of your money quickly.
Before you sign the documents, read the contract carefully and check that all the fees are included in the cost of the loan. For example, different lenders charge additional administrative fees for checking your vehicle title and details, preparing documentation on your vehicle to be loaned and making a loan offer, and installing GPS or other equipment on your car.
You can use your property right for secured car loans as a guarantee to repay the loan. And as an additional guarantee for the lender, the loan amount will be paid in a particular proportion to the value of your car (but this value is not equal to the purchase price). Usually, when applying for title loans, you can expect up to 50% of the initially paid car's value as a maximum loan amount. Terms for vehicle title loans are to be disclosed to make the loan process transparent.
What are the major types of car title loans?
Various properties can be used as collateral for a secured loan. Still, when we talk about movable property, there are a few main types of collateral among movable properties that are used for title loans:
cars;
RV;
trailers;
motorcycles;
boats;
other movable vehicles if they meet lender regulations (including heavy equipment, semi-trucks, etc.).
Auto title loans are the most common, as Canadians own more than one vehicle per household. With movable property that belongs only to you, you can arrange a quick cash solution and get a loan for your urgent needs without worrying about strict criteria for access to money, bad credit, and credit score problems. If you repay the loan well, you can gradually boost your credit score in the eyes of reputable lenders like top banks, etc., who usually offer loan products with lower interest rates.
You can check to whom report payments are disclosed.
How to apply for a car title loan?
The exact procedure can vary greatly depending on the lender, but the basic principles are more or less similar. Usually, there is an option to apply online, but you can also call or visit the lender's nearest branch. The application will be reviewed quickly, and the lender will ask you to provide additional documents, check your vehicle and sign the loan agreement.
Sometimes there is also the option of pre-approval, so you can get an idea of whether the loan is right for you without already committing to the lender.
Title loans are popular because they do not require employment verification (bank statements with cash flow information may be sufficient for the lender), only personal information, contact information, and address, information about your vehicle (model year, mileage, name of vehicle).
In the preliminary stage, the borrower must meet with a lender's representative to inspect the vehicle. After that, the documents can be submitted entirely electronically or in any other form the lender prefers.
The lender will require a driver's license and vehicle registration copy. In addition, the lender might check the history of accidents related to the vehicle.
After signing the loan agreement and taking out additional insurance, if required, the borrower continues to drive the vehicle and receives the money from a few months to a few years, depending on the loan terms. The main difference between such loans and unsecured loans is that your title is used as a security interest to reduce the risk. Typically, gaining access to money with such a loan product is easy if your car title document is in place.
What are the main requirements for obtaining a car title loan?
Car loans have somewhat different requirements than other secured loans, but most lenders have a standard procedure.
Of course, the borrower must have reached the age of majority (18 or other age provided by state regulations), but there must also be a pure title to your movable property.
If the vehicle was purchased with loan funds, you could not use it as collateral for a vehicle loan until it is repaid in full. You must be the owner and provide proof of ownership and proof of repayment of your car loan (meaning there are no outstanding loans on this car).
For some lenders, essential requirements include a certain maximum mileage and vehicle age. The possibility of obtaining a loan if you have an older car or higher mileage should be clarified directly with the lender. It could be considered an additional risk. However, even if approved, you may receive a lower percentage of the vehicle's cost if the lender provides an estimate from a specialist.
valid driver's license;
You may be required to provide a valid vehicle inspection document;
Proof of your residency;
Bank statement to show that you have sufficient funds to service and repay car title loans.
There is an obligation to bring the car for inspection of its condition, and borrowers may also charge this service (vehicle inspection fees).
Ways to get a car title loan
Once the lender is done with its check and has made sure that the vehicle is yours and completely paid (by verifying pay stubs or other documents), you get to the essential step: getting money to cover your urgent needs. Depending on the lender, procedures, and your choice, there are several ways to get money. The main ways to get cash for a title loan are listed below.
Direct deposit
Direct deposit is a fast and convenient way to transfer money from sender to recipient. The lender initiates an electronic payment to the borrower's checking account. The account information is requested when applying for the title loan, and as you may understand, it is essential to ensure everything is correct to receive the money. In addition, such payment forms make it possible to avoid check copies and be environmentally conscious. All confirmations can be accessed in your online banking, or you can request a statement at your bank branch.
As soon as you get money credited to your account, you can withdraw cash, pay your bills, etc.
In cash
Check the operating hours of your lender and get cash at one of its branches once you have been approved for a loan. In this case, you will have to drive to your lender during its operating hours.
Check
The usual procedure for checks is that they must be endorsed, signed, and cashed or deposited into your account for further use as needed. If you are unsure how to use the check, it is best to contact the lender or your bank, and you will be able to cash it without any problems if it was issued correctly.
How to repay a title loan debt
The lender offers several ways to handle the repayment of the loan, and you can choose the one that is most convenient for you. However, if you have any problems with the payment method, it is better to contact the lender and find a solution together, as this will impact your future credit score. Below you can find the standard repayment methods and a brief description.
Automatic debits
Direct debit is controlled by the lender and processed after your initial approval when the credit is drawn from your account. This makes it different from automatic payments that you set up in your bank and are executed by your bank. It is a certain form of giving access to your account.
Debit card
This method allows you to pay the loan with your debit card by using the transfer from your account feature in online banking or your banking app. It's fast and secure. But it requires responsible actions to ensure that the payment is made on time and in full, and that you also have a sufficient amount in your account to cover this transaction.
In cash
This method allows you to pay the loan in cash in a lender’s physical store.
Money order
This method is a safe alternative to cash payments and provides proof of payment as long as you keep the receipt. It is always essential to keep all receipts for loan repayments. Ensure that the beneficiary information and the purpose of use are correct so that the installment can be credited commonly and on time.
Check
You must write and sign the check for the amount requested and mark it with the date the installment is due (or earlier, that's up to you, just make sure there are no penalties for early payments) and give it to the lending institution.
Pros and cons of car title loans
Vehicle title loans became popular as an alternative to other quick loans. An auto title loan is readily available, but that does not make such a financial commitment any less severe than other loans. Of course, it helps not to turn desperate if you can not find ways to increase your cash flow to compensate for your urgent financial needs, but it has risks as a safe loan and, if not used wisely, can drag you into a bottomless financial pit. Moreover, it has more requirements than payday loans because not all lenders could consider collateral cars over seven years old with significant mileage. After all, lender interest is not repossessing your property but getting their money and earned interest without bearing extra costs.
Before applying and even getting pre-approved, take a moment to consider all the factors for and against such a loan decision.
Pros
toll-free application;
no down payment;
no credit check as with a car loan;
you do not have to explain what you want to use the borrowed money for, and it's up to you;
you only need to prove that you can repay the loan and have a stable cash flow;
fast approval process;
quick access to money;
the amount can be from 25% to 50% of the value of the vehicle (usually), but this must be clarified with the lender and also depends on the condition of the vehicle;
you continue to drive your car;
lower interest rate compared to payday loans;
more extended repayment period compared to many quick loans;
required additional insurance covers the loan if something happens to you or the car, so you or your family do not have to worry about it.
Cons
your car must be repaid in full; if you are still repaying your car loan, then there is no way to get approved for title loans with this vehicle as collateral;
you might have to pay additional costs for vehicle inspection, lien, supplemental insurance, etc., which will increase the initial loan cost for you;
you cannot fully dispose of your car because of the lien;
you can only drive your vehicle as long as you make payments on time. If you can not service the loan, you have an additional problem that makes your initial financial situation worse: you do not have a vehicle;
sometimes it is required that GPS or an immobilizer would be installed in your car;
you need to visit an office or another place to have the vehicle checked by a specialist, and only the electronic form of document flow can not be applied in this part of the credit procedure.
Summarizing the above-mentioned, title loans have several advantages, such as comparatively lower interest rates, a more extended payback period, and a fast procedure to get the money, but there are such disadvantages. For example, your car has to be paid in full, you have to be the sole owner, you have higher risks of losing your movable property if the debt is not repaid, and there are additional insurance and inspection costs to bear as a loan cost.
Legal regulation of the title loans in Canada
Title loans are not regulated by the federal government of Canada, meaning the job is done at the provincial level. This concerns interest rates and the possibility of obtaining such loans. Some provinces impose strict requirements on title loan lenders and require that they be licensed. Alberta, for example, has a high-cost regulation whereby loans with an interest rate of 32% or more are considered high-cost and such lenders must be licensed. The annual license costs the lender $1,000, and a fee is charged for each additional branch.
A lender license is a measure to protect customer rights, as a considerable amount of personal data is generated in the course of the business relationship between lender and borrower, and the lender must take legal measures to protect it from misuse, disclose it to third parties, and prevent data loss. There are two levels of data protection regulation. The first relates to the state level, and the second refers to companies that use customers' data, such as title loan lenders. Under the Privacy Act, personal information includes age, marital status, education or employment history, personal ID numbers, driver's license, opinions about you as an employee, etc. Unless personal information crosses the provincial boundaries of Alberta, British Columbia, and Quebec, PIPEDA (Personal Information Protection and Electronic Document Act) does not apply to organizations operating in the above provinces.
Different legal requirements apply to informing borrowers about the terms of the loan. This includes the “no hidden fees” concept. From the information presented by the lender about car title loans, you have to know loan origination fees. For example, you must be informed if there are additional fees for pawning your car, other vehicle inspections, installation of GPS, etc. Other things come up in the final stages of the application process: Some lenders install GPS on your vehicle or an immobilizer, and you may need to deposit a second key. It depends on the lender, and you may never be faced with such requirements, but if you are, it must be done with your consent. Suppose you have not given your consent, and such devices are found. In that case, you can inform the police about this situation, and the relevant authorities will investigate and take action to protect you against the improper business activity of such auto title lenders.
The real cost of a car title loan
The actual cost of a title loan is much higher than the interest rate alone. They include all the fees you must pay for the lender's services during the origination and approval phases, and your insurance costs should not be forgotten.
If you fall behind on your payments, interest can be added to the principal amount and increase your debt burden. Instead of paying 30-60%, you may pay over 100% on your loan. However, under the law, the lender must disclose and clear the full cost of the loan. Make sure you understand the loan agreement and are fully informed. Do not be afraid to ask questions, as you must remember that it is in your best interest to be financially secure.