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Are Car Title Loans Really Bad?

By Jenny Williee | April 10 2019

Getting cash advance against your car or vehicle title is not a new subject to most American citizens.In fact, about half of American states permit title loans in one form or another.

A car title loan is a secured loan that allows individuals with poor credits as well as individuals who may not have easy access to borrowing money when in desperate need the opportunity to enjoy access money fast.

In recent times, title pawn loans have become a more convenient alternative to getting quick cash for a financial emergency of any kind. Especially due to the fact that it is almost impossible accessing loans from other conventional financial institutions like banks and credit union.

Just like any other subject, there are pros and cons of car title loans, and this article will point out these advantages and disadvantages to you. Also, we will be taking a close look at these pros and cons to see if title loans are a bad idea.


Are Car Title Loans Really Bad? 

For some time now, the concept of car title loans has been a subject of constant debate. While some believe it a great idea as it is a savior in times of urgent financial needs, others claim it is a bad option.

For example, President Obama once said, “at first it seems like easy money. But the average borrower ends up spending about 200 days out of the year in debt.”

are car title loans really badFormer US president, Obama, at Lawson State Community College in Birmingham, Alabama insisted that payday loans leave borrowers caged in a “cycle of debt.”

He said, “You take out a $500 loan at the rates that they’re charging at these payday loans – some cases 450 percent interest – you wind up paying more than $1,000 in interest and fees on the $500 that you borrowed … You don’t need to be a math genius to know that it’s a pretty bad deal if you’re borrowing $500 and you have to pay back $1,000 in interest”

Sam Gilford, a spokesperson for the Consumer Financial Protection Bureau said, “In our research on auto title loans, we found that many products may be marketed for a short-term financial emergency, but the long-term cost of the loan can often make a bad situation worse”

A lot of others still think in this line. Are they right? Are they wrong? Well, the answer to these questions will be revealed as you read through this article.


Car title loans typically payday loans. This is because they are usually short-term loans anybody can take in a situation of a financial emergency.

When it comes to making a financial decision concerning loans, it is quite normal to feel a little uncertain and perplexed. Apart from the fact that there are a lot of risks involved, you may also be wondering if pawning your car or vehicle title for fast cash is a great idea.

Online car title loans are one of the ways you can get fast access to cash when you are in need of financial help or when you have a financial emergency. Car title loans are easy to get and are always within your reach if you have a car that will qualify you.


A Summary of How it Works

An individual (the borrower) approaches a car title loan company (the lender) with the car and its title or pink slip. The lender evaluates the worth or value of the car and offers a loan based on a percentage of the car’s worth. And the lender holds on to their title of the car as collateral until the loan is fully repaid.

Auto title loans use your car title or your pink slip as collateral. In other words, the car title is what ensures the lender against a default (that is if the borrower fails to repay the loan on schedule). The title loan company has the right to repossess the car in case of a loan default.


Here’s how it works;

  • First, bring your vehicle and lien-free vehicle title to the auto title company.
  • Fill out an application (either online, over the phone or at a location close to you)
  • Your car will be evaluated to determine its value as well as the amount you can get
  • After the loan approval, you will receive the money while you continue to use your car or vehicle
  • You get back your title once you completely repay the loan


Some car title lenders will even require you to install a GPS device in your car so that in a case of repossession, they can easily find the car or vehicle wherever you go.

In order to qualify for this loan, a borrower must own a car outright, or at least have enough equity on the car or vehicle. The lender will inspect the car and process a quick application before giving out the loan. This type of auto loan can leave the borrower at a risk of losing his or her car(repossession).

If you are in the market for getting an auto title loan you have probably read articles about the dangers of auto title loans, also known as pink slip loans and vehicle collateral loans.  The purpose of this article is to answer the question:  Are car title loans bad?



The Positives of Car Title Loans

The advantages of a car title loan are as follows;

Quick Money: A car title loan is quite straightforward to obtain, and the cash can be acquired very quickly. If you opt to get an online car title loan, you may receive your funding within minutes of application, on the same day.

Once you have provided all of the information required during the application process, it gets easier from there.And unlike traditional lenders, the application process eliminates too many documentations and sticks to the basics, which are; proof of income identification, car title and sometimes, proof of residency.

Your credit report is not a yardstick for accessing an auto title loan. You may have poor or bad credit and still get the loan.

Getting a loan from conventional lenders like banks and credit unions can be a very stressful and tedious adventure. The traditional banks and credit union are credit-based lenders, so, your credit score may be a major determinant for you to qualify for a loan.

For a bank or credit union to give you a loan that is unsecured, your credit has to be perfect. Plus, their policies are strict, and their conditions are stringent. Therefore, car title loans work faster (in almost all cases) that traditional finance.

While the car title is used as collateral, you retain possession of your car, driving your car wherever and whenever you want throughout the loan period.

A lot of borrowers are able to plan repayment and even build their credit through the assistance of a car title loan. Car title loans can be great tools for people who are in a critical financial situation and know they will have the money to pay off by the time the terms end.

DeYoung said in an interview with Freakonomics Radio that “Most folks hear the word payday lending and they immediately think of evil lenders who are making poor people even poorer. I wouldn’t agree with that accusation.”

After the payday lenders handed the data showing how long it usually takes customers to pay off their loans, Ronald Mann in the same interview said: “I didn’t really expect that the data would be so favorable to the perspective of the borrowers.”


The Negatives of Car Title Loans

The disadvantages of car title loans are as follows;

Interest Rates: Car title loans are typically 24 to 36 month termed with very expensive interest rates. Though state laws limit interest rates, these rates are still very high compared to that of other alternatives.

Here’s the twist; you end up paying more money the longer you keep the auto title loan.

With the title loans being on average from 24 to 36 months long, with no prepayment penalties, they do allow the clients to pay off at any time.

You are also vulnerable to losing your car if you fail to meet up the payments. This is called repossession. The possibility of losing ownership of your car or vehicle is the greatest downside of a car title loan.

Just the way individuals can lose their house, business asset, or any asset they use as collateral to collect a loan from a traditional financing institution, you can also lose your car in an auto title loan since your car title is the collateral.

If your car is repossessed, things could quickly get worse from there. You may begin to find it more challenging, even difficult, keeping up with your daily tasks and activities since your means of transportation is no longer available.

A study by Skiba Vanderbilt, Kathryn Fritzdixon, and Jim Hawkins, surveying 400 title loan customers in three states (Georgia, Idaho, and Texas) in partnership with a title lending firm in November and December 2012 indicated that; less than 10 percent of vehicles involved in title loans ended up being repossessed.

Moreover, less than 15 percent of borrowers said they had no other way to get to work if their car were repossessed.

These percentages may seem insignificant, it, however, points to the fact that quite a number of borrowers who lose their jobs may be as a result of these kinds of loans.


The Balance

Are car title loans bad? The answer, as is the case with most things is:  It depends.

First of all, it depends on your own unique financial situation.  A case where the need for quick funding is to take care of a medical emergency is quite different from a situation where an individual need cash for a holiday trip.

Your credit status could be so bad that traditional lenders may not be willing to take the risk of giving you a loan. However, this is one of the situations for which a car title loan is designed.

Unless you can easily afford the interest charges and payments, it is preferable to use auto title loans as a short-term loan for emergencies in California.

Car Title Loans balanceHere’s some more clarifying information.  First and foremost, a car title loan works by borrowing against the equity in your car or vehicle.  The process can happen very simple and fast (sometimes within the same day of applying for the title loan).

Other alternatives to getting a loan may not be as quick and straightforward as an auto identity loan. Conventional lenders may take you through depressing procedures, and sometimes, may even turn down your loan request

However, since you are using your car or vehicle as collateral, you can even end up having worst credit, past mortgage foreclosures, a bankruptcy or other issues. Probably due to the risk of a default caused by some unforeseen circumstances.



A pink slip loan is a way to get a short-term loan and get the loan fast. But they are usually very costly or expensive. In most cases, title loans end up being more expensive than they are worth. You may even lose your car through repossession if you default on your payments.

To get an auto title loan, you will need to pledge your vehicle as collateral for the loan (by giving the title to the lender until the loan is completely repaid).

If you face critical financial challenges and need quick cash, but no other option seems appealing, (for example, you need funds for urgent medical treatment and there is no other way of getting the money fast), a car title loan would make sense.

But, the interest rates on auto title loans in California are very high. The major reason for this is because car title loan lenders are embarking on a very risky adventure, loaning cash with the expectation that the borrower would pay up.

But as there are no prepayment penalties, it makes paying off your title loan easy.

Another reason for this high-interest rates is that despite the fact that the Department of Business Oversight in California regulates the car title loan industries, there is very little competition within the title loan market. This is because new title loan companies still find it difficult to enter the market.

Just like any loan which involves presenting an asset as collateral, a borrower could lose that asset if repayment is not fully completed as at when due. In the same way, you could end up losing your car in a car title loan if you default on the loan payment.

A lot of times, people who get an auto title loan in California need money for a funeral, medical emergency, car repair, home repair, or something very urgent.  These are when auto title loans can be used for quick cash.

But remember, the longer you have the auto title loan the more it will cost (just like any loan).

Call Car Title Loans California today on  1 844 -242-7467 or visit our website for more information. And for your fast online car title loans, fill out the application form on the side of this website!