How Car Title Loans Work, Step by Step

A car title loan lets you borrow against a car you own: the lender holds your title as collateral and can repossess the car if you don't repay. Most are single-payment loans due in 15 or 30 days, with a monthly fee the FTC says can be as high as 25%, or about 300% APR. Below is each step, a worked example of what rolling a loan over costs, and cheaper ways to raise the money.

Step by Step: From Appraisal to Getting Your Title Back

1. You bring the car and its title. The title usually needs to be in your name, with the car paid off or close to it. Lenders commonly ask for ID and proof of insurance too.
2. The lender appraises the car. It looks at the car and a pricing guide, then offers a fraction of the value. Consumer guides commonly put offers at 25% to 50% of what the car is worth. Virginia, for example, requires licensed title lenders to set the value from a recognized pricing guide and disclose it in the contract.
3. The lender takes a lien. It holds your title or is listed as lienholder, while you keep driving the car.
4. You sign the agreement. Read the finance charge, the APR and the due date before you sign, not after.
5. You repay or roll over. On the due date you pay the loan plus the fee and get your title back. If you can't, many lenders let you pay just the fee and start a new loan.
6. If you stop paying, the lender can take the car. The FTC warns this can happen even if you've made partial payments.

Single-Payment vs. Installment Title Loans

	Single-payment title loan	Installment title loan
Term	Usually 15 or 30 days	Several months to a few years
How you repay	The full loan plus the fee at once	Regular payments of principal and interest
Main risk	Rolling over again and again	Paying high rates over a long time

Some states allow only the installment kind. Under Virginia law, a title loan can't exceed $2,500 and must run 6 to 24 months in substantially equal installments, with limited exceptions for shorter terms. An installment title loan avoids the 30-day cliff, but your car is still on the line for the whole term.

What a $1,000 Title Loan Costs After 3 Rollovers

Say you borrow $1,000 for 30 days at a 25% monthly fee, the FTC's example. You owe $1,250 at the end of month one. If you can only pay the fee, you roll it over.

Due date	What you pay	Still owed after
Month 1	$250 fee (rollover 1)	$1,000
Month 2	$250 fee (rollover 2)	$1,000
Month 3	$250 fee (rollover 3)	$1,000
Month 4	$1,250 payoff	$0
Total	$2,000

You pay $1,000 in fees to borrow $1,000 for four months, and the balance never drops until the last payment. A 25% monthly fee is 300% a year (25% x 12). For contrast, a $1,000 installment loan at 36% APR over 12 months costs about $100 a month and about $206 in total interest.

Examples for illustration only, not an offer. Your actual APR, fees and payments are in your loan agreement and vary by lender and state.

What the CFPB Found About Rollovers

The CFPB's May 2016 study of nearly 3.5 million single-payment title loans (made in 2010 to 2013) found:

• About one in five borrowers had the car or truck seized for failing to repay.
• More than four in five loans were renewed on the day they were due.
• In more than half of cases, borrowers took out four or more loans in a row.
• Only about 12% of borrowers repaid without quickly borrowing again.
• The typical loan was about $700, at about 300% APR.

Where Title Loans Are Allowed

State rules vary widely. Some states ban car title loans or cap rates low enough that title lenders don't operate there. Others allow 30-day loans, and some, like Virginia, allow only installment versions with dollar and term limits. Federal law also protects the military: the Military Lending Act caps the Military APR at 36% on many loans, including car title loans. The FTC suggests checking with your state attorney general or financial regulator for the rules where you live.

Cheaper Ways to Raise $1,000

• Payday alternative loans (PALs). Federal credit unions can offer PALs I of $200 to $1,000 over 1 to 6 months, or PALs II of up to $2,000 over up to 12 months, with an application fee of no more than $20 and no rollovers.
• A payment plan. If the bill is a repair shop, hospital or utility, ask for installments before you borrow at all.
• An unsecured installment loan. Rates can still be high, but your car isn't collateral. Compare options in our installment loans guide.
• A small advance. If you need only a couple hundred dollars, a cash advance app may cost a few dollars in fees.
• A fast plan for the emergency itself. Our emergency cash guide sorts options by situation.

If You Still Need a Loan

LendUp is an online loan-matching service for $200 to $5,000. Checking your rate is free and available for any credit score, and approval is not guaranteed. If you're weighing a title loan, compare it first with a $1,000 loan repaid in installments.

Frequently Asked Questions