A quick crash course on this common practice

You may be aware of certain types of loans that you can get. For example, you can get a secured loan. If you do, use something valuable that you have as collateral, like your home or jewelry.

You can get an unsecured loan. If you do, contact a lending institution and ask about the loan, and they will usually give you one if you have a steady job and at least decent credit.

However, in this article we are going to talk about another type of loan, title loan. With this type of loan, your car serves as security. We will discuss whether you can get a title loan with bad creditwhen to consider this option, and some potential implications of choosing one.

How title loans work

First, let’s describe the basics. If you want a title loan, you must have a car. This type of loan falls into the secured loan category that we just mentioned.

You contact a lending institution, such as a credit union or bank. You have to prove to them that you own the car, so have the title handy. You should have this piece of paper in your files somewhere.

Title loans usually make you money in the short-term, but they’re also usually high-interest loans when you compare the interest rate the lender gives you to what you might get on other types of loans. For example, if you get an unsecured loan but have a good job and great credit, you should get a much lower interest rate than you would normally get on a title loan.


When you get a home loan, the lender temporarily mortgages your vehicle. This means they have the right to potentially own your property, in this case the car, if you are unable to repay that loan.

You can also take out a loan, for example using your home as collateral. In this case, the lender establishes the lien on your home.

Any time a lender puts a lien on your property, they may be able to take it from you if you are unable to repay the loan. Because of this contractual provision, secured loans carry an inherent risk. If something unexpected happens and you can’t repay that loan, you could lose the home, car, or whatever else you voluntarily pledged as collateral.

Can You Secure a Bad Credit Title Loan?

Let’s say you only have fair credit. When you look at your FICO score, maybe you’re sitting at about 600 or so. If you look at your Vantage Score, you might be 610 or 620.

Most credit institutions consider this loan to be decent. If you can get that score above 700, you’ll be doing a lot better.

If you decide you need money and taking out a loan seems like a viable option, then using your car and getting a title loan becomes an attractive prospect if you have moderate credit. You don’t need a fantastic loan to get some short-term cash when you can prove you own the car and a lien is readily given to you.

What disadvantages come with this loan?

Of course, if you put up something like a house, a car, some valuable antiques, or anything else and then can’t repay that loan, the bank or someone else who has the lien on that property or item can collect it. You can fight this process, but if they have a lien and you can’t pay the money back on time, the lender has the legal right and will enforce it.

If you do not give up the item without a fight, they will pass on your data to a debt collection agency. At this point your life becomes quite difficult.

Collection agencies will haunt you every chance they get. They’ll keep calling your home, sending you threatening emails, and soon they’ll visit your home too. They’re like legal loan sharks. They don’t do anything that’s technically illegal or unethical, but you won’t like the experience very much.

If you repay that loan or hand over your property, you’ll get rid of them.

What about additional disadvantages?

There is one additional downside worth mentioning. If you get this type of loan, you have to expect a significantly higher interest rate until you pay it back. If you have good credit, a steady job, and get a loan from a reputable entity like a National Bank, you might get an interest rate of around 5-8%.

If you get a title loan and don’t have that great credit, you may want double the interest or more. You must repay this loan as soon as possible or you will owe more and more over time.

When should you get this loan?

Given these disadvantages, you are logically wondering when to do this. There is a specific time when it makes the most sense.

If you don’t have great credit, but you own your car and have the title, you can pursue this type of loan. Presumably, if so, then you are in dire need of money and cannot get it anywhere else. At this point, getting the title loan seems like a viable option.

However, only do this if you are sure that you can repay the entire loan in the short term. For example, if you know you’re in for a windfall and you know when you’ll get it, you can move forward without a hitch. You know the approximate date by which you can repay the loan, at which point the lien on your car will disappear.

If Not sure if you can repay the title loan on time, then you are venturing into dangerous territory. The lender won’t break your thumbs or anything so dramatic, but they may be able to repossess your car. You probably don’t want that, so only get a title loan if you feel like you can repay the money wisely.

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