Title pawning, or title loans as they're also known, is a practice borrowers sometimes employ to get quick cash. These are similar to a personal loan, but you use your car for collateral. Though these loans are designed to help in a pinch, they're best avoided for several reasons.
Title Loans Explained
A title loan is one where you hand over your vehicle's title as collateral on a short-term loan. These loans are typically around 30 days, but some lenders may allow for more time. Plus, they come with steep interest rates.
They're often appealing to individuals who own a car but need cash quickly. You can usually get one in around an hour or less, depending on your situation, and you still get to drive your car. The lender just holds the title.
Here's the rub, though – if you take out a title loan on your car and fail to repay it, you lose your car. Title pawning is a huge risk for this reason.
To get a title loan, you have to have equity in your vehicle, and typically must own it free and clear. Lenders generally only provide loans for 25% to 50% of the vehicle's value, so they can recover their investment and make a profit by selling vehicles whose loans have not been paid. Some may even install GPS monitors and make copies of your keys to make the repossession process easier if you fail to pay.
Can I Pawn My Title?
Whether you can pawn your car title or not depends on a few factors. Like most loans, eligibility requirements vary between lenders, and with your personal situation. Typically, you can follow these guidelines if you're thinking about pawning your vehicle title for some quick cash.
Ask yourself these questions:
- Do you own your car? – If the answer is yes, you could be eligible to get a title loan. However, if you still owe money on a car loan, you likely don't qualify.
- Is there equity in your vehicle? – If you own your car its entire value is equity. If you don't, you have equity when your vehicle is worth more than you owe on the loan.
- Can I realistically afford to repay this? – Remember if you're taking out a large chunk of change, that you have to repay it quickly or risk losing your vehicle.
- How much more do I have to repay than I borrowed? – Like personal loans, the interest rates on title loans can be really high – often as much as 200% or more. It's possible, depending on the size of your loan, that you're going to pay hundreds, or even thousands more than you borrowed.
- Is there a better way to get more money? – If you're in pinch, but the need isn't dire, you may be able to find other, less expensive and risky, ways to come up with the cash.
If you answered NO to any of the first three questions, title pawning likely isn't for you.
Need More Money Without Title Pawning?
If you have a loan on your car and need quick cash, cash-out refinancing could be for you. What this does is allow you to take the equity from your vehicle and use it in other ways. To qualify, you must have equity in your vehicle, and meet all the refinancing requirements of the lender.
Here's how it works: Imaging you owe just $4,000 on your loan, but your car is worth $6,000. If you qualify for cash-out refinancing, you're getting a new loan on your vehicle for $6,000, and getting $2,000 cash in hand. You can use the money however you need, and repay the loan by the end of your new term.
Another Option to Consider
If you don't own your car and need a break on your expenses, consider refinancing instead. Refinancing replaces the current loan on your vehicle with another, hopefully, one with a lower interest rate.
Most borrowers refinance in order to save money each month on their car payments. You can do this by qualifying for a lower interest rate or a longer loan term. Both will save you money each month, but only qualifying for a lower rate saves you each month. If you only extend your term but don't lower your interest rate, you actually end up paying more in the long run.
If you think refinancing might be the answer you've been searching for, you have options. Auto Credit Express wants to help you get the refinancing deal you're seeking by connecting you with the right resources. Start your refinancing journey today!