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How Car Title Loans Work

Oct - 8 - 2013

When obtaining a traditional loan is not an option, those that own their vehicles outright may be able to obtain a car title loan in states where they are legal. The repercussions are steep if you default on the loan. It is important to read the fine print as well as ask questions regarding terms, interest percentage rates and the procedure for obtaining an extension if one might be available.

Applying for and Accepting the Title Loan

In order to apply for a car title loan, you must have a clear title. The vehicle must be in your name, must be free of liens and must be paid in full. A loan can be offered for the amount your car is valued at from a general appraisal or blue book value chart. Your ability to repay the loan from income verification is also a requirement. Proof of income and a valid checking account are also required.

In most cases, you can walk into a facility; fill out their application and walk out with your cash. You will be able to keep your vehicle while you have the loan out. It is an opportunity for you to continue to work to repay the loan for the emergency funds needed.


In some cases, payments on larger loans can be broken up into several monthly or weekly payments. Where a small loan, usually a few hundred dollars, is secured, one payment may be all that is offered. Every payment has to be made on time. Some establishments may offer an extension with an added fee and others just tack on penalties for late payments. Payments must be made on time. Any missed payments default your loan and permit the loan facility to take legal action. They can also attempt to deposit the check written when the loan was taken out, which an overdraft your bank account if the funds are not there.

Consequences for Non-Payment of the Loan

The consequences for non-payment of a car title loan are rather steep. You give the company your car title to hold as collateral that you will repay along with a check written on your account that is held. If you do not pay the loan back, the vehicle becomes their property and they are authorized to take possession of the vehicle. At that time, they are also authorized to have the title transferred and either sell or auction the vehicle off to try to get their money back. If the money is not recouped, they can take you to court. This will result in additional fees and penalties.

When you take out a car title loan, it is intended to be short term. These are for emergency situations where you need money to pay a bill, stop a foreclosure, and pay medical expenses or any other emergent need. The interest can be high so it is important that you make the payments on time. Jeopardizing losing your mode of transportation is not worth defaulting on the loan, so call if you know you will be late and you might be able to get some extra time on a payment.

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