man holding a car key in front of the car

You know that time you have a mortgage loan that is due, maybe you have your kid’s school fees that need to be settled, or basically, any other kind of emergency that needs settling, but you are broke.

It gets to the point that you need to look at borrowing alternatives for a way out. There are many types of loans these days.

You could get a traditional loan, but it poses a challenge. As much as you want to get a bank loan, you realize that it’s really hard if you have a bad credit score.

Thus, you have to look for other borrowing alternatives. One of them is an online car title loan which is also known as an auto title loan. This article will tell you how it works.

Car title loan application- Are title loans a good idea?

Title loans for cars or auto title loans are small loan amounts that you can get if you use your car as collateral.

Typically, they are referred to as secure loans because if the borrower is unable to repay the loan, the car will be sold so that the lender can recover his money.

They are short loans with loan tenures typically from 30 days to maybe a couple of years.

It is very easy to apply for a title loan for a car. The first thing you do is apply to the lending company of your choice, assuming that you have done your homework and know which company is able to help you.

There are two ways of application – physical application and online application. You may apply by dropping off the application form at the lending company’s office or online.

You are required to have a couple of documents for making the application process to be simple and easy. They include your name, age, home address, proof of work, and other details.

For an online application, you are required to visit the website of your lending company. Fill out your details according to the online form and then submit it.

Whether you do a physical application or an online one, the documents which you will need include the car title and its photo identification.

The company will also need to see the collateral, which is the car you’re currently using, to verify its condition and market value to determine the maximum amount of money you could get a loan.

The company will also ask for another set of keys for the car and may request for you to get a roadside plan.

The loan is then processed. If you qualify for a title loan for a car, a company will then write you a check or direct deposit the loan amount into your bank account.

Cost of a car title loan

The cost of the loan varies. Basically, the loan can be between 35%-45% of the market value of the car. Thus, it’s all about what kind of car you have used as collateral. The loan is for about 30 days. However, depending on your contract, you could have a longer period for repayment.

When applying, you are required to first pay up all the processing fees and then after 30 days, you start paying your interest and other fees that may be added on top of the car title loan.

Interest rates

The interest rates on car title loans are some of the highest compared to other kinds of loans. The loans are typically small, ranging from $150- $1500, but they could also go up to $5000. It all depends on your car.

Looking at the annual percentage rates (APR) of the loan, you will realize that it’s one of the highest among all loans.

Typically, traditional loans have about 7% APR, while APRs of credit card loans are around 20%. The APR for a car title loan is about 300%. This means that you will need to pay up to 300% of the amount of money you actually borrowed.

Mathematically, an APR of 300% translates to about 25% interest rates per month. It should also be noted that this is the basic number, which is averagely given as a statistic.

In a real sense, the interest rates are customized according to the agreement between the borrower and the lender. Thus, there is a sense of flexibility in car title loans.


There are 3 main ways of repayment: physical, online payment, and withdrawal from the borrower’s deposit account.

Physical repayment

This means that the borrower makes his way to the lending company and makes a repayment himself. This is a common and convenient method, especially if you live close to the company.

Online repayment

This mode of repayment is easy, convenient, and flexible. This lets you make online repayments on your phone from anywhere.

Deposit accounts withdrawal

This method is usually used by people who have a large sum of money to be repaid each month. This involves the lending company withdrawing a certain amount of money from your deposit account.

This is done with your approval and your bank. According to most state legislation, the lending company is not allowed to make more than two withdrawals consecutively.


Rollovers happen when you are unable to repay the loan back on time. A rollover lets you extend the repayment period by 30 days. This, however, comes at a price.

You will have to pay a penalty fee and a couple of other fees for processing the loan rollover. The lender may also decide to review the loan’s interest rates at this point and may increase them.

Rollovers have a flip side. This means you will have to pay a lot more. This may be challenging since you resorted to borrowing due to a difficult financial situation in the first place. This leads to a debt trap, should you roll over again and again.

Repossession of car

Remember when requesting the loan, the lending company asks for an extra set of your car and a roadside plan? Typically the lender decides to repossess your car because you are unable to repay the loan.

The repossession process, however, doesn’t start immediately. The lender will give you a couple of payment options and several ways out before eventually deciding to take a repossession action.

During repossession, the lender will sell your car to recover his money. At this point, you lose your automobile. The excess money left after debt settlement could be given back to you, or the lender could decide to keep all of it. Essentially, this depends on where you are from and the state legislation.

If you are able to make prompt repayments on your car title loan, you will get to keep your car.