3 Things to Consider Before Taking Out a Title Loan

As defined by Consumer.Gov, “A car title loan is a loan for a small amount of money and for a short time”. This type of loan is not ideal for extended financial needs but can help greatly in short-term situations. Those needing assistance with short-term funding for things such as car repairs, home repairs, medical bills, or short-term bill consolidation are typically the most served in this industry.

The title loan is a legally binding agreement in which a vehicle’s ownership title is temporarily traded in exchange for money. In some cases, doing well with such a loan may greatly help the borrower in numerous ways, even potentially boosting their credit rating. On the other hand though, in cases of failed loan repayment, the vehicle on the title may eventually become the property of the lending company in the absence of the agreed-to funds.

As a result, the decision to sign onto a title loan is one to be made with thought and consideration. So, what are some things to consider before taking out a title loan?

Term Length, Prepayment Options

Whether a title is involved or not, term length and prepayment options should always be clearly understood before taking out a loan. You need to know how long you will have to repay the loan and how many payments this will require. You should also understand the prepayment parameters laid out in the loan’s terms. In many cases, you can pay-off the loan early, saving interest charges in the end. Other companies however prefer to stick to the original terms, thus discouraging prepayment via penalties and other mechanisms.


As obvious as this may seem to some, you really need to understand the legal finality once you have applied your signature to the loan. Certainly the loan may provide you with the desperately necessary finances you need right now, but you typically cannot change your mind once signed on. Some lenders do provide a 24-hour mind-change period though.

Credit Implications

Finally, a key understanding to have involving your loan is its credit implications. Will it affect your credit in a positive way if you meet or exceed your end of the deal? Some companies do report positive results to the credit authorities while others do not. All negative ending results however can be expected to be subject to reporting to the credit authorities.

In the end, today’s title loan can really help those in immediate need. Like any financial arrangement though, the terms of the loan such as those listed here should always be considered carefully first. For additional resources on title loans and similar lending in the US, the United States Department of the Treasury’s “Consumer Protection” publication provides volumes of official guidance.

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