Best Car Title Loan Alternatives

When financial emergencies hit, it can be tempting to jump at the first financing option that fills the need. Unfortunately, many fast lending companies prey on individuals in desperate financial situations and charge high loan fees and triple-digit interest rates in exchange for no-hassle funding, even for borrowers with bad credit.

Not all car title loans are bad options, but even the best title loans will likely come saddled with extremely high interest rates that can make timely repayment extremely challenging. If you’ve ever wondered, “Is getting a loan on my car title a good option for me?” you may need to explore further. With car title loans, you are putting a lot on the line, so it’s important to know what is a car title loan and how car title loans work before accepting the loan.

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    What is a car title loan?

    A car title loan is a loan option for borrowers who need fast funding without a credit check. This type of loan is secured with the title of a vehicle owned by the borrower. If the borrower ever defaults on the loan, the lender can use the title to prove ownership interest in the car and sell it to recoup the borrowed funds.

    Most of the time, borrowers use a traditional car title to secure the loan, although titles to trucks, motorcycles, ATVs and boats can be used in some cases. Car title loans are also not meant to replace traditional personal loans — an auto title loan is typically limited to a 30-day term, and many states have laws specifically limiting the term length of these loans.

    Laws surrounding car title loans

    There are several federal, state and city laws that govern how title loans can be issued and managed. The federal Truth in Lending Act requires all lenders, including those who issue car title loans, to disclose the total cost of the loan before requiring your signature and acceptance of the terms. Specifically, lenders must disclose both the APR and any additional one-time origination or processing fees that add to the cost of the loan.

    Each state also issues regulations that are specific to car title loans. In many states, car title loans are considered “predatory lending” due to high interest rates and aggressive repayment terms; in most of these states, car title loans are illegal. Currently, car title loans are only legal in 16 states, and four additional states offer legal loopholes that allow car title loans to be issued under strict circumstances.

    Some cities also issue laws or regulations that put restrictions on the loan amounts and interest rates associated with car title loans. Before accepting a car title loan, borrowers should research federal, state, and city laws that may apply in their area.  

    Alternatives to car title loans

    Many borrowers choose car title loans because they do not have sufficient credit to get a traditional personal loan. However, other financing options can provide fast cash to borrowers with credit issues that don’t put their vehicles at risk.

    Bad credit personal loans

    Bad credit personal loans are structured similarly to traditional personal loans, but they are offered through lenders that are willing to work with high-risk borrowers. These loans also have high interest rates and loan fees, but they can be less risky since borrowers do not have to risk their vehicles to be approved.

    OneMain Financial

    OneMain Financial offers personal loans ranging from $1,500 to $20,000 for terms up to 60 months. The company doesn’t list any specific credit score requirements, opting instead for a holistic review of a borrower’s financial situation and ability to repay. APRs on OneMain loans can vary from 18.00% to 35.99%, which is much higher than rates for personal loans through other banks, but it’s also significantly lower than the triple-digit rates available through most car title lenders.  

    OneMain encourages borrowers to get a personalized experience by contacting their local branch or a loan representative at one of the nearly 1,700 branch offices nationwide. Once approved, the loan is usually funded in less than 24 hours, and there are several convenient ways to make payments and manage your loan.

    RISE Credit

    RISE Credit also offers personal loans to borrowers facing credit challenges. RISE doesn’t disclose any specific credit requirements, but borrowers must have a regular source of income, have an active checking account and live in a state serviced by RISE to apply. Currently, RISE is available in 31 states.

    Borrowers can apply for personal loans ranging from $500 to $5,000, so individuals looking for larger loan amounts need to explore other options. A RISE personal loan will have an APR ranging from 50% to 299% and a repayment term between five and 26 months. Although these interest rates and terms are significantly higher than many personal loan options, credit-challenged borrowers may find this alternative cheaper than payday or car title loans. Additionally, borrowers who build a good credit history through RISE are eligible to refinance at lower interest rates after several on-time payments.

    Credit Cards

    For fast funding in emergencies, it could be cheaper and easier to finance expenses with credit cards. Most car title loans are limited to the lesser of $1,000 or 25% of the value of the vehicle, and many credit card companies offer credit limits that meet or exceed the amount available through a car title loan. Even better, interest rates on credit cards typically do not exceed 36% even for those with the lowest credit scores, so adding your expenses to your credit cards can often be cheaper in the long run than taking out a car title loan.

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    Payday Alternative Loans

    As an alternative to high-cost payday loans that can trap borrowers in an unhealthy cycle of debt, the National Credit Union Administration (NCUA) initiated a Payday Alternative Loans (PAL) program. Through this program, PALs can give members access to the funds they need in an emergency while still providing reasonable terms that can help them repay the loan and get out of debt.

    With a PAL, federal credit unions that are part of the NCUA can offer members small loans of up to $1,000 at much better interest rates than traditional payday loans. The credit unions can charge up to 28% interest and offer loan terms ranging from 1-6 months. Borrowers must be a member of the credit union for at least a month, so non-members can apply for membership and, when approved, can apply for a loan 30 days later.

    We welcome your feedback on this article and would love to hear about your experience with the car title loan alternatives we recommend. Contact us at inquiries@thesimpledollar.com with comments or questions.

    Julia Taylor

    Contributing Writer

    Julia Taylor is a freelance writer based in Nashville, TN. She takes complex business, financial, and technical topics and makes them easy to understand. You can find her work published on a variety of business blogs, including Paychex, Kapitus, Sanford Brown, Fortis Educational Institutes, American University of Antigua and Interest.com