How Does an Auto Title Loan Work?

An auto title loan – often known as a pink-slip loan or title pawn – is a way for people with a clear title to obtain funds by using their vehicle as collateral.

There are many things to understand about an auto title loan before getting started, with these details among the most important:

  • You must have a clear title in order to use your vehicle as collateral
  • Auto title loans are short term (15 to 30 days) and for a small amount of money
  • Auto title loans are typically associated with a higher than average interest rate

Applying for an Auto Title Loan

If you’re interested in an auto title loan, you’ll want to find several local lenders and/or online services that can provide you with more information on the process and terms and conditions.

Regardless of if you apply online or in person, you’re required to complete an application. In addition to basic contact information, here’s what your lender will need:

  • Your car
  • Clear title
  • Photo identification (driver’s license is most common)
  • Proof of insurance

While not always required, some lenders will ask for a set of car keys.

Two Things to Remember

Just the same as any type of loan or credit card, you don’t want to proceed until you’re clear about what you’re getting into. Here are two things you need to do:

  • Review the terms and conditions. Auto title lenders are required by law to provide the terms and conditions of the loan in writing, before you sign on the dotted line. This gives you the opportunity to better understand the term, finance charge, and APR. If anything looks out of place, ask for clarification.
  • Watch for add-ons. It’s one thing to obtain an auto title loan, but another thing entirely to get stuck with unnecessary add-ons that can cost you additional money. For example, many lenders will attempt to saddle you with a roadside service plan.

What Happens After Signing?

Once you receive approval, provide the necessary information, and sign for the loan, you receive your money and the lender receives the title.

From that point, the lender will hold onto your title until you pay back the loan in its entirety.

In regards to how you pay, most lenders provide the following options:

  • In person: if you obtained your loan through a local company, you can visit in person to make payments.
  • Online system: this is most common for online lenders, as it allows consumers to make secure and instant payments via the internet.
  • Automated recurring payments: as long as you agree to it, the lender can make recurring automatic debits from your bank account until the money is paid back.

Is it the Right Choice for You?

While an auto title loan may end up being the perfect solution to your financial problems, it always makes sense to consider other options. Some alternatives include:

  • Personal loan from a bank
  • Credit card
  • Loan from family and/or friends

Final Thoughts

As long as you have a clear title, you’ll qualify for an auto title loan.

Once you understand the terms and conditions – including the repayment period and interest rate – you can make a confident decision on what to do next.