An Overview of Title Loans
A title loan is a method of borrowing money based on the equity of your vehicle. Unlike bank loans, title loans are more accessible to borrowers that are underemployed, bankrupt or suffer from poor credit. Essentially, a title loan will let you borrow money using the title of your vehicle as collateral. You will continue to drive your car and have the extra cash you need. The requirements of a title loan can vary by state and lender. Typically, a lender will consider things like the market value of your car and your income to determine how much you can borrow and at what interest rate.
The basic requirement for getting a title loan in most states is that you be 18 years of age and have a lien-free title to a vehicle in your name. Some states have banned title loans altogether. While others have allowed them in either the same way as pawnbrokers or other short-term lenders. Some states have made specific laws to regulate what title lenders are allowed to do. These regulations can be very specific and set limits for loan amounts or interest rates. For example, in New Mexico, you cannot borrow more than $2,500. While in Nevada, the borrowing limit is based on income and your monthly loan payment cannot be more than 25% of your pre-tax income.
Title Loan Laws Vary by State
Although some states have concrete guidelines for title loans, others have no limits on the amount you can borrow. In any event, borrowers should pay close attention to what they sign. They should make sure they thoroughly understand their obligations as title loans are short-term loans. That means borrowers will likely have a lot of interest to pay, but they will also have to do it quickly. Some states and some lenders may offer extensions, but others have the right to repossess your vehicle after the first missed payment.
In New Mexico, for example, your car can be repossessed immediately after default. While in Kansas, a lender has to wait at least ten days after a missed payment before taking any steps towards repossession. In addition, the first step they can take is to give the borrower up to 20 additional days to make their payment. Even after your car has been repossessed, some states require lenders to give borrowers the opportunity to pay the loan balance and prevent the vehicle from being sold.
However, even after your vehicle has been repossessed and sold, you may still owe money. Depending on the laws of your state if your car sells for less than what you owe you may have to pay the difference. And if your vehicle sells for more than you owe the laws of your state can decide whether you have the extra money returned to you or if it belongs to your lender. Title loans can vary widely from state to state, so it is essential to know your rights and obligations before getting a loan.
Title Loan Citations & Statutes
As of January 31, 2018, car title loans are legal in 23 states. In 4 states (California, Kansas, Louisiana, and South Carolina), car title lending operate under legal loopholes. Title loan laws change periodically, therefore it is important to visit your state’s legislative website by clicking on the state’s citation link below.