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Home > Do Title Loans Go Against Your Credit

Do Title Loans Go Against Your Credit

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Shir Amram

Written by: Shir Amram

At some point in most people’s lives, there will come a time in which they need quick cash but won’t know where to turn. There are so many reasons that could cause this like an unexpected medical emergency or the sudden loss of employment. Some may be able to borrow money from close relatives or use some savings. But for those who don’t have that privilege, the options can be quite limited and costly. Title loans are often accessible even to those with bad credit.

Luckily, car title loans are available in many states and are a convenient option to help one get back on track. Those interested in this option often ask “do title loans affect your credit?” and we are happy to answer that as long as you make all your payments properly and do not default on the loan, the title loan will not hurt your credit whatsoever. This is because we don’t report your loan progress to the credit bureaus, making the loan a great solution for those who simply need cash without all the hassles or future negative implications that a traditional loan can have.

That’s the great thing about auto title loans, they are based on your car’s value thus avoiding all the reliance on your credit score or history. With a title loan, you use your car’s title as collateral, allowing you to borrow based on the car’s value. Title loans are available even to those with a less-than-perfect credit standing.

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Montana Capital Car Title Loans serves applicants from more than 30 States! By connecting with a trusted lender, we help people apply for a title loan safely and quickly. Call us now and let our support team guide you.

Introduction to Car Title Loans

Car title loans, sometimes called auto title loans, are a type of secured loan that allows borrowers to use their vehicle’s title as collateral in exchange for quick access to cash. These loans are especially popular among individuals with poor credit or those facing urgent financial situations, as title loans work without the need for a strong credit history. By leveraging the value of your car, you can gain access to fast cash, often within a single business day.

However, it’s important to understand that car title loans come with high interest rates and fees, which can negatively impact your financial situation if not managed carefully. Since your car’s title is used as collateral, failing to repay the loan could result in the loss of your vehicle. Before signing on the dotted line, make sure you fully understand how title loans work, the total cost involved, and the potential risks to your credit and finances.

How Credit Score Works

Of course to understand the answers to questions like “do title loans affect your credit?” or “does defaulting on a title loan affect your credit?”, you must understand how the credit score itself works. The good news is this can be simpler than you think. There are several factors that affect the score which is a number in the range from 300-850. Maintaining good credit habits can help you build credit and strengthen your credit profile over time.

As we mentioned before, payment history is probably the main thing affecting your credit rating. Lenders want to make sure that you can pay back the money you borrowed and therefore knowing that you have a good credit score, and therefore a good payment history, is important to many of them, especially for those giving out unsecured loans. Lenders may perform a credit check to assess your creditworthiness before approving a loan.

Another factor that affects your credit score is the utilization rate, or in other words, how much of the credit you were being given is used. For example, if you have a credit card with a limit of $1000, lenders want to see you are not maxing out and using all of this limit every month. Instead, to increase your credit score, make sure to utilize only a portion of the available credit, preferably around 30%.

Another very important factor that affects your credit score is how new it is. Lenders want to see that you’ve had different forms of credit for lengthy periods. So getting several new credit cards at once, for example, can negatively affect your score because it shows the lender you are very much in need of credit. New accounts and inquiries are reflected on your credit report, which is monitored by the major credit bureaus such as TransUnion, Equifax, and Experian.

Title Loans and Credit Score – Do They Affect Each Other?

Many people invest a lot of effort in building their credit score. Getting to a good credit rating can take years and so it makes sense that people don’t want all that hard work to go to waste. There are different ways credit can be affected but the most important factor is your credit history. Your payment history includes information that includes whether payments were made on time and if there is any debt that is accruing.

Some credit bureaus, like Experian, suggest that your credit history makes up around 35% of your credit score. Since this makes such a large effect on your credit score, it is important that you make all your payments in a timely manner and pay as much as possible of what you owe.

So how does this connect to title loans? Do title loans affect your credit? For the most part, lenders do not report your payment history to the credit bureaus so the title loan has no effect on your credit. Most title lenders do not report to credit bureaus, but some may. However, there are some companies who do report that you have defaulted on the loan, especially if the default is large and you have reached a vehicle repossession, a common repercussion for those who have severely defaulted on the loan. Most borrowers risk losing their vehicle if they default, and most title loans are structured with short loan terms and high costs. To avoid repossession, borrowers should communicate with their lender and make timely payments. Make sure to ask your chosen lender about their policies regarding payment history reporting to the credit bureaus.

Another way a title loan could affect your credit score is by running a credit inquiry in order to approve you for the loan. Running your credit is a known parameter that can affect your credit score negatively and some lenders check your credit before approving the loan. However, some title lenders do not require a credit check, but lenders require proof of ownership, a photo ID, and the vehicle’s title.

A title pawn is another form of title loan, and the title loan cost can increase significantly if the loan is rolled over or not repaid on time. Unlike payment history, this factor has a very small effect on your credit and for the most part, a single inquiry will not have a lasting effect on the credit score. When repaying your title loan, it is important to pay the full amount to avoid additional fees and repossession.

How Can a Title Loan Hurt Your Score

So now that you know more about the question “will a title loan affect my credit?”, it’s time to see how title loans can actually help improve your score. Raising your credit score is important so you can easily be approved for loans, credit cards, and other funding in the future. It is not a short process and it takes a lot of financial responsibility and work to improve your credit score. But once you are successful you will be able to enjoy better terms and more options so this dedication is worthwhile.

Most title loan lenders don’t report your information to the credit bureau so a title loan is most likely to never improve your credit score. However, one reason a title loan is beneficial is that many lenders don’t check your credit, meaning you won’t have a credit inquiry on your report. As we’ve mentioned, gaining several credit inquiries in a short period of time can negatively affect your credit rating so you want to avoid this.

Unlike many traditional lenders, auto title loan companies are often able to approve customers without checking credit, relying instead on their collateral and proof of ability to repay the loan. Additionally, you may find some lenders who do report your performance on the loan to the credit bureaus, and so making your payments on time and lowering your debt can improve your score tremendously for these types of loans.

By being a responsible borrower and consistently making timely payments, you can positively affect your credit profile and support your efforts in rebuilding credit. Make sure to always ask your lender regarding their credit reporting policies.

The Risks of Debt Trap

While title loans can provide quick relief in a financial emergency, they also carry the risk of trapping borrowers in a vicious cycle of debt. Many borrowers find themselves unable to repay the loan in full by the due date, leading them to renew or roll over the loan. Each renewal often comes with additional fees and interest, making it even harder to pay off the original amount borrowed.

This cycle, known as a debt trap, can quickly escalate, with borrowers paying far more in interest and fees than they initially received. According to the Consumer Financial Protection Bureau, a significant percentage of car title loan borrowers still owe money months after taking out their loan. To avoid falling into this trap, it’s crucial to borrow only what you can realistically repay and to make timely payments. By staying on top of your payments and avoiding unnecessary renewals, you can protect yourself from mounting debt and financial stress.

Car Title Loan Costs and Fees

The true cost of a car title loan can be much higher than it first appears. Most lenders charge a monthly interest rate of around 25%, which adds up to an annual percentage rate (APR) of approximately 300%. In addition to the high interest rate, borrowers may face a variety of fees, including processing, documentation, and loan origination charges.

For many borrowers, these costs can add up quickly. On average, a title loan borrower may pay around $1,200 per year in interest and fees alone. Before agreeing to a car title loan, it’s essential to carefully review the loan terms and conditions. Make sure you understand the total amount you’ll be required to repay, including all interest and fees, so you can make an informed decision and avoid unexpected financial strain.

Alternatives to Title Loans

Before committing to a title loan, it’s wise to explore other loan options that may offer lower interest rates and more favorable terms. Personal loans from banks, credit unions, or reputable online lenders can be a better solution for many borrowers, especially those looking to protect their credit score and avoid high costs. These alternatives often come with lower interest rates and more manageable repayment plans.

If you’re struggling with your financial situation, consider reaching out to credit unions or non-profit credit counseling agencies for guidance. You may also be able to negotiate payment plans with your creditors or seek help from a family member or friend.

By exploring all available options, you can find the best solution for your needs and avoid the risks associated with title loans. Taking the time to compare loan options and understand the impact on your credit can help you make a decision that supports your long-term financial health.

Shir Amram

Written by

Shir Amram

Shir Amram is a senior loan officer at Montana Capital Car Title Loans. With over 10 years of experience in the finance industry, Shir has been an asset in her role and has contributed significantly to our company’s success, Shir’s academic background in economics and financial knowledge helps us fulfill our education mission as she creates a valuable content to our blog. 

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