5 Car Title Loans for Bad Credit: Get a Title Loan Without Worrying About Credit Checks
Most auto title lenders pay little attention to your credit score when considering your application. That’s because they supply secured auto loans that use your vehicle as collateral.
If you have a car that’s paid off (or has current equity within the loan) and you have verifiable employment that pays enough to afford your monthly loan payment, then you’ll likely be approved for a title loan.
Title lenders forgive bad credit histories because they have a fallback option should you default on your loan. The lender can repossess your vehicle should you stop making payments, since your car’s title secures the loan.
An unsecured loan — the type that doesn’t require you to risk your personal property for approval — traditionally has strict approval standards and requires thorough credit checks. That’s because, should you stop paying, the lender has little recourse other than selling your loan to a collection agency for pennies on the dollar.
To mitigate that risk, lenders often scrutinize your payment history to avoid taking a big loss on a loan. But if you default on an auto title loan, the lender can take your vehicle, sell it, and recoup most (and sometimes more) of the money lent to you.
That’s why many auto title loan applications don’t include credit history information. Instead, the lender will ask for information regarding your vehicle, proof that you own it outright, and proof-of-income information that shows how much you make, as well as your current monthly bill obligations, to determine your debt-to-income ratio.
Once the lender decides if you can afford the loan, he or she is likely to issue your funds quickly and then place a lien on your vehicle that gives the lending agency access to it if payments aren’t made.
How Much Can You Get for a Title Loan?
Lenders design most auto title loans for consumers who have a bad credit history. These loans often feature enormously high interest rates and short repayment terms.
They also feature low payouts.
Lenders want to make money. The only way they do that is by minimizing their risk and maximizing their interest options. Since so many of these loans end up in default, the only way lenders can guarantee some sort of a profit is if they lend you substantially less money than your car is worth.
Then, if you stop making payments and the lender seizes your car, the agency can sell it and recoup its original loan funds along with the same profit it would have earned through your interest. Sometimes, they make more through selling your vehicle than if you satisfy your loan obligations through monthly payments.
How much you get for your loan will depend on your lender’s loan-to-value ratio standards. Each lender sets a cap on how much they loan — which typically equals a percentage of your car’s current value.
Most lenders will lend out 50% to 85% of your vehicle’s Blue Book value. Some lenders, although rare, will go as low as 20% and as high as 120%. Few lenders publicize their loan-to-value ratio standards, so you’ll need to contact your lender — before applying — to get an idea of how much you may qualify for.
Keep in mind that some lenders also tack on origination fees, set-up charges, or other add-ons to your loan that can take away from your payout. This is on top of very high interest rates that make these loans incredibly expensive.
Your lender should disclose all the fees you’ll incur before you sign for a loan. But, to be on the safe side, it’s better to ask before you finalize any deal.
Is there a Credit Check for Title Loans?
Every lender sets different standards for acceptance when reviewing a loan application. While some lenders always require a credit check and income verification for approval, many auto title lenders forego a credit check and simply ask for proof of income and detailed information about your car.
Credit doesn’t matter as much to the lender because they can profit from the loan whether you pay it or not. That’s because they gain from the interest added to each payment — or they make money from selling your car if they repossess it in the case of a default.
But for the convenience of a no-credit-check loan, you’ll pay interest rates that climb as high as 25% monthly (which equates to more than 300% annually). You’ll also likely face loan set-up fees and other stipulations that may seem odd to you.