How Car Title Pawns Work

What You Need to Know

Have you ever heard of “title pawning” before? When you first hear the term, what probably comes to mind is selling your car at the closest pawn shop for way less than it’s actually worth. However, a title pawn doesn’t entail any of this. Essentially it’s just another term for a title loan. Title loans or “title pawns” as they’re sometimes called are just secured loans that use your vehicle as collateral.

The state of Georgia processes the most title pawns out of all the states in the U.S. In Georgia, Atlanta has the most lenders.

The reality is that even the best of us run into financial hardship. Some of us find ourselves in situations where we could use a bit of extra cash. Whether it’s to pay for repairs, vacations, or even start a business, money is a commodity. If you were to ask most successful business owners and millionaires if they’ve ever had to take out a loan before, 90% of them would tell you “Yes, and without asking for a loan, I wouldn’t be here today.”

What Is A Title Pawn?

Like we mentioned above, a title pawn is just a term to describe a loan secured by your vehicle’s title. They differ from traditional loans because they don’t require you to undergo credit background checks. The only thing that you need is a car that you own outright (not financed) and a job to prove to your lender that you have a means to pay them back.

Most title loans are short-term loans, which mean that repayment terms are usually 12 months or less. However, if you’re borrowing a larger amount, lenders may give you 24 or 36-month terms. These loans also tend to have high interest rates. It behooves borrowers to pay off the loan as early as they can. Doing this helps to avoid paying the extra interest fees and expenses.

How Do Title Pawns Work?

Pawnshop organizations often advertise themselves as being “the easiest way to obtain a loan- period.” Usually, these bold statements are just marketing ploys to draw in unsuspecting borrowers in need. However, in the case of title pawns, what you see is what you get. Title loans are a simple way to get the money that you need when you need it.

When you go to apply for a title-backed loan, you’ll start by bringing them your vehicle along with the title proving that you do in fact own it. They’ll then perform a quick appraisal of your vehicle based on the condition it’s in and it’s up-to-date Kelly Blue Book value. You’ll then be able to request an amount up to the total appraised value of your car.

Keep in mind that you should only borrow what you can afford to pay back. If they offer you more than you expect, take out only what you need. This is known as responsible borrowing and is the best way to ensure that “complications” don’t arise on down the line.

After approving the loan, they’ll take your vehicle’s title and put a lien on it which gives them temporary legal ownership over your car until you pay them back. If you don’t pay them back, they reserve the right to take your car and sell it at auction to recoup their loss.

Most lenders will cut you a check for the amount the same day or on the next business day. You’ll then be required to make payments (including interest) every month toward your balance principle. Once you pay your loan back, they’ll remove the lien from your vehicle, and you’ll be the full owner once again.

Lender Requirements

Some states have their own individual laws when it comes to title pawn loans. These laws are designed to prevent “predatory lending” techniques and ensure borrower security and safety. However, most lenders that use car titles as collateral for pawns require the following:

  • Vehicle (in working order and with title in-hand)
  • Insurance and valid plates on the vehicle
  • Your personal information
  • Proof of income

Comparing the Alternatives

Up until the past few decades, if you wanted to take out a loan you would either have to go to your local bank or a shady loan shark. After meeting with the lender and undergoing an extensive background check, you would have to wait days or even weeks for an answer to hear back whether or not you were approved or not.

Title pawns came out as a quick and easy way to obtain a loan using only your car title to back your loan. Instead of having to deal with extensive credit checks and long wait times, a vehicle title pawn allows you to obtain a loan for up the value of your car and take the money home the very same day.

Legal Regulation

Lending has always been a tricky subject. Unregulated lending has long fueled illegal gangs and the mob, often having disastrous consequences. As a result, many states have place regulations on lenders dictating who they can lend to, how much they can loan you, and repayment terms/interest rates. Here are some of the common laws that you may come across, though:

  • Limits on APR and fixed interest rates
  • Some states don’t allow military to take out title loans
  • All borrowers must be at least 18 years of age
  • Borrowers must be U.S. citizens

Conclusion

Title pawning is a great way to put some quick cash in your pocket without the hassle of more traditional bank loans and personal loans. As long as you’re a responsible borrower and have a plan to repay your loan and don’t take out more than you need, then you shouldn’t experience any problems.

References

“Truth About Title Pawning Loans and Bankruptcy”, Jeffrey Kelly, 2018,
https://www.kellycanhelp.com/blog/truth-about-title-pawn-loans-and-bankruptcy/