Getting a Loan Against Your Car: Title Loans for Bad Credit

May 11, 2016

Everyone hits a rough patch now and again, and sometimes that rough patch is compounded by credit struggles. When that rough patch is a financial issue and bad credit is preventing you from getting a loan, the only option you may have is taking out a loan against your vehicle’s title. A car title loan, which some people call a "pink slip auto loan," is a collateral loan where your car is put up as the security for the loan. This added security of a car backing the loan gives the lender enough comfort to write you a loan in a pinch, even if you have bad credit.

Step 1: Look for Lenders

Fire up the old computer and do a thorough Internet search to put together a group of these title lenders in your area. If you live in a rural area, you may need to search the nearest big city to find a lender. While searching, check out the various lenders’ websites to get any information on their processes and rates. Speaking of rates, keep in mind that these loans can come with high fees and interest rates since many people end up not paying on time. Should you be one of those who doesn’t pay on time, you could be subjected to higher interest rates, or worse yet, having your car repossessed. Also, keep in mind that many of these loans become fully due in just a month, meaning you do not have much time to pay them back.

Step 2: Talk to a Lender

Once you have picked your lender, you will want to meet them in a face to face chat. During this chat, they can answer your questions better and lay out the terms of the agreement. The most important part of this conversation is the discussion of interest rates. These loans have high interest rates and are often based on monthly, not annual percentages. That means a 25 percent interest rate is really equal to a 300 percent annual percentage rate (APR). These loans can get costly if you don't pay them off in time.

Step 3: Valuation

Valuing your car is the next step. Before you head over to the lender, you should have your car washed, or wash it yourself. The better the car looks, the more the lender may value it. Chances are, they will not go through a rigorous inspection, so if it looks good, they will likely offer you more money. They will let you borrow up to half of the car's value, so it is to your advantage to make it look as valuable as possible.

In summary, car title loans are one of the few options for those with bad credit. They typically do not require a credit check as the loan is based on collateral. If you do not pay off the loan in time, you will likely lose that collateral, which is your car. Because the consequences are so significant with these loans, make sure you thoroughly check your finances beforehand to assure you can pay it back in a timely manner.

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Loan approval is not guranteed and is subject to credit application and approval of the lender. Individual loan terms may vary.