Car Title Loans Interest Rates: What’s the Average Rate?

Auto Title Loans Rates: A Guide to Car Loan Interest

The average title loan interest rate can be as much as 200% to 300% annually.

Emergency car title loans are best when you have no other option and need money fast. Title loans are usually more expensive than most other loan options, so it’s important to only use them in dire emergencies.

According to Pew Charitable Trusts, the APR on title loans is 300%, but the actual rates vary by state. Lenders may also charge other charges in addition to interest, such as processing fees, document fees, or late penalties, which can increase the total cost of the loan.

For instance, if you borrow $1,000, you may have to pay as much as $250 in interest on a loan you must repay in 30 days, assuming a high interest rate of 300%. The finance charge for this loan would be $250, meaning the dollar amount you pay in interest and fees is significant compared to the amount borrowed.

However, if you can’t repay the loan in 30 days and choose to roll it over, it will cost you extra, increasing your $1,000 loan to $1,500, which is 25% interest on the remaining $1,250. Rolling over the loan can leave you in a worse position financially, as the total dollar cost continues to grow.

At Montana Capital, we want everyone to fully understand what they are signing up for, and that begins with being transparent about interest rates. We want our borrowers to understand that title loans aren’t legal in every state; each state has different title loan laws and APR maximums allowed, and APRs can vary greatly by lender.

What Is the Interest Rate on Most Title Loans?

The interest rate on most title loans is high. For example, our rates range from 60% – 175% APR.

The interest amount you pay depends on many factors, including your ability to repay the loan and the value of the collateral in the car, which means your car’s worth. The loan is typically repaid through a monthly payment that includes both principal and interest. It is important that the loan is fully paid by the end of the term to avoid additional charges.

What Are Loan Interest Rates?

Loan interest rates are the fees car title loan companies charge to lend you money. Most loans have interest rates, including mortgages, cars, and personal loans.

The interest rate charged is a percentage of the money borrowed. Most interest rates are displayed as an annual percentage rate or APR. So when you see the terms APR or interest rate, think of it as the cost to borrow money.

Lenders are required to provide all interest rate and cost information in writing before you commit to the loan.

What Is a Title Loan?

Car collateral loans are loans against your car title; you give the lender your car title in exchange for the loan. The average person borrows $1,000 for a car title loan, but most lenders allow loan amounts equal to 25% to 50% of the car’s value. The good news is you can keep your car and drive it with a car title loan, and as long as you make your payments, nothing will change.

With many lenders, title loans are short-term loans starting at $100 and usually due within 15 to 30 days, but each lender has different terms and loan amounts. Since some title lenders’ credit requirements are less strict, car title loans are best for consumers with a poor credit history who need cash fast. Some lenders perform credit checks, while others offer loans with no credit checks at all.

The title loan application process is simple, with most applications available online. You can apply within a few minutes and, if approved, may receive funds in as little as 24 hours — sometimes sooner. To obtain a title loan, you must provide a clear title, proof of income, and a valid photo ID. Some lenders may also require a bank account for funding.

However, because title loans are easily accessed, they have high interest rates; some states limit the APRs title lenders can charge, and some prohibit using title loans.

If title loans are allowed in your state, you must own the car without any loans; however, some lenders may allow title loans if you have only a small outstanding balance, but this is rare. The vehicle serves as collateral for the loan, and the term motor vehicle includes cars, trucks, motorcycles, and other vehicles such as vans or mobile homes.

Car Title Loan Example

Here’s what you might expect when you borrow money against your car.

• You need $1,000 cash fast for a financial emergency
• The cost is 25% with a due date in 30 days
• You give your lender the title and they send you the $1,000 cash via direct deposit
• You pay $1,350 within 30 days to repay the loan

How To Get a Car Title Loan: Car Title Loan Requirements

The good news is that getting a title loan is not hard. Lenders focus primarily on the collateral or the car you own and your source of income. They must know the vehicle is worth enough should they need to repossess it to recoup the outstanding loan amount, and have proof you can afford repayment. You may need to request the loan in person or online, and lenders may verify your bank account as part of the approval process.

Here’s How to Qualify:

• Proof of income: Income doesn’t have to be employment, it can be other sources, such as unemployment, worker’s comp, pension, or Social Security income, as a few examples.
• Proof you own the car: You must own the car lien-free and be the owner on the registration
• Proof of the car’s value: The car must be worth enough to cover the loan and provide the lender with enough collateral

Lenders may also charge an origination fee, as well as other charges or other fees, such as processing or document fees, which can increase the total cost of the loan.

How Much Can I Get for a Title Loan on My Car?

The amount you can borrow for a loan with a car title depends on what your state allows.

In states where auto title loans are permitted, lenders typically allow loan amounts of 25% to 50% of the car’s value. However, we lend up to 70% of the vehicle’s value, which means the maximum dollar amount you can borrow is based on a percentage of your car’s appraised value. This loan essentially functions as an advance against the value of your vehicle, giving you access to funds based on your car’s worth.

The Disadvantages of Title Loans

When you need money fast, it can feel like your only option is a car title loan, but they have some downsides you should consider when evaluating your options.

• You must own the car – Most lenders only allow you to borrow money against your car if you own the vehicle free from any liens.
• High fees – Title loans often have high fees, including upfront fees and interest rates you pay as long as you have an outstanding balance. If you miss a payment, you may be charged a late fee, which can add to your total debt. If the loan is not repaid in full, you may face ongoing debt that can be difficult to escape.
• Risk losing your car  – If you borrow a car title loan you cannot afford, you risk losing your car since a lender repossesses vehicles when title loans are unpaid if title loan repossession laws allow it. If you default or are defaulting on the loan, you may lose your car through repossession. After repossession, the lender may sell your car, and if the selling price exceeds what you owe, the lender may keep all the money or return the surplus, depending on state law. If the sale does not cover the debt, you may still owe the remaining balance.
• Not available everywhere – Car title loans are not available in all states.

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Where Can I Get a Loan on My Car Title?

Many online car title lenders can process your title loan application quickly and, if approved, provide funds within a couple of days. You can request a loan online or in person, depending on the lender.

The key is to find a reputable title loan company that charges reasonable fees and interest rates to keep your costs down and help you with your financial emergency when borrowing loans with the car as collateral. It is important to choose a licensed car title lender to ensure compliance with state regulations and borrower protections.

At Montana Capital, we offer title loans with interest rates between 60% – 175%, plus fees. Our loans do not have a prepayment penalty, so you can repay the loan as soon as you’re ready. This ensures you avoid higher future payments and excessive interest charges.

Alternatives to Car Title Loans

Car title loans should be a last resort after exhausting all alternatives. The higher interest rate and fees make car title loans much more expensive than most other options, including the following. In fact, car title loans are similar to payday loans in that both are short-term, high-cost options that can quickly become expensive due to high fees and potential rollover charges. However, payday alternative loans, which are available through credit unions, offer a more affordable and safer option for borrowers.

If you are a member of a credit union, you may have access to personal loans or payday alternative loans with lower interest rates and more flexible terms than traditional payday loans or car title loans. Credit unions are known for working with individuals who have poor credit or need affordable short-term loans, making them a reliable choice for many borrowers.

When facing a financial emergency, consider these alternatives to help pay bills such as rent or utilities, rather than turning to high-cost loans. Also, be aware that some lenders may require you to purchase a roadside service plan as part of the loan agreement, which can add to the overall cost.

Unsecured Personal Loan

An unsecured personal loan doesn’t require collateral but, as a tradeoff, has higher interest rates than secured loans for people with good credit. According to a recent Bankrate study, the average unsecured personal loan APR is 11.31%. You can apply for an unsecured personal loan at your local bank or through peer-to-peer lending platforms if you meet the credit requirements.

While the rates are higher on unsecured personal loans, they are typically lower than title loan lender charges. The downside is personal loans may take a little longer to process and fund, depending on the lender. However, keep in mind that borrowers with bad credit may have difficulty qualifying for an unsecured personal loan.

Borrow From Family or Friends

Admitting you’re experiencing a financial emergency may make family and friends want to jump in and help immediately. Don’t be afraid to share your struggles with those closest to you and determine if they can let you borrow money from them.

When borrowing from friends or family, ensure everyone clearly understands the loan terms, including any fees, interest charges, and when repayment is expected, so everyone is on the same page.

Use Your Credit Card

If the cost of your emergency is low enough to fit on your credit card, consider using it and not borrowing a vehicle title loan. Credit card interest rates may seem high if you carry a balance, but they are often much less than interest charged on vehicle title loans. According to Lending Tree, credit card APRs average 24.45% on all new credit card offers, compared to title loans with an average APR of 200% to 300%.

FAQs

How Long Do You Have To Pay Back a Title Loan?

Each lender determines the loan terms, including how long you have to repay the loan. Many car title loans have a term of 15 to 30 days.

What Do You Need for a Title Loan?

To get a title loan, you must prove you have the income to afford the loan and you are the owner of the title for the vehicle.

The title must not have any liens, and the car must have enough value to support the loan with a maximum loan-to-value ratio of 25% to 50%, depending on the lender.

Summary

Looking at the title loan interest rates, you probably wonder, are title loans bad? 

While they shouldn’t be your first option when you need money, title auto loans can help you get cash fast in a severe emergency.

Before borrowing the money, make sure you can afford the repayment terms, including the interest rates and fees charged by lenders. The average title loan interest rate can be 200% to 300% annually which can translate to $166 to $250 per month on a $1,000 loan.

To find the best interest rate and most favorable terms, compare offers from multiple lenders before signing an agreement. If you accept a car title loan, pay it off as quickly as possible to avoid sky-high interest payments.

Contact us today if you’re in the market for a secured title loan from a company that allows an entirely online application for cash loans on car titles. If approved, you may receive your cash in as little as 24 hours on business days.