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.
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%.
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.
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.
Tip: Before signing a title loan agreement, compare offers from a few lenders to ensure you’re getting the most beneficial deal.
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 and the value of the collateral in the car, which means your car’s worth.
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.
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.
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.
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.
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.
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 just 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
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 lends up to 70% of the vehicle’s value.
Good to Know: Transparency for car title loan laws is similar to any other loan you might borrow. Lenders must disclose the loan’s total cost, including the monthly finance fee, APR, and any additional costs, such as processing or document fees.
Read the loan agreement closely, and compare title loan rates to find the best car title loans to suit your needs.
For example, we lends up to $20,000, but some title loans lenders offer up to $50,000.
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.
- 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.
- Not available everywhere – Car title loans are not available in all states.
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.
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.
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:
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%.
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.
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.