Hoping to Refinance Your Title Loan? Here’s What You Need to Know

Sometimes life will throw a wrench in your plans, and very often, it’s unexpected. You might even need a loan.

Also, if your credit score is not really anything to brag about, the chances of getting a loan are lower. But don’t despair. The good news is that if you’ve fallen behind on payments on your title loan, it is possible to refinance that title loan to prevent your car from being repossessed. But refinancing is not your only option. Read on to learn more.

Can I Refinance My Title Loan?

Refinancing means replacing a current title loan debt with another to get different terms. You can either refinance with an existing title loan lender or find a new lender with better terms.

The process to refinance a title loan is like inquiring for a new one and usually takes three steps:

  • Inquire for a refinanced title loan
  • Submit paperwork
  • Sign a new title loan contract

A portion of the money included in your approval will help take care of the remaining balance of the existing title loan. After the details are completed and the refinance process is finished, you can begin by repaying the title loan and begin the added terms.

How Do Auto Title Loans Work?

You visit the title loan company with your vehicle, along with the vehicle’s title. The lender will assess the vehicle’s value and offer a loan based on a percentage of that amount. According to the Pew Charitable Trusts, the average title loan amount is about $1,000. The entire process can take less than an hour, however, the lender holds your vehicle title as collateral until you’ve repaid the loan.

There are two kinds of car title loans:

  • Single-payment loans: These require borrowers to repay in one lump amount usually about one month later. These have an average APR of 300%.
  • Installment loans: These let borrowers make monthly loan payments on a payment plan, usually over three to six months. These have an average APR of 259%.

Since your vehicle is held as collateral, title loan lenders usually have fewer loan requirements and don’t require a credit check, so it’s easier to qualify if you have poor credit.

What Happens if I Refinance My Existing Title Loan?

You can refinance a title loan, assuming you meet the requirements that often include residing in a state that permits refinancing.

Additional requirements are like getting an original loan. Refinancing a title loan often saves money. Sometimes, you may be able to repay your title loan and get your title back faster with a lower interest rate.

What is the Average Interest Rate on a Car Title Loan Refinance?

The typical APR on a title loan is about 300%, according to the Federal Trade Commission. Also, title loan providers might charge other fees associated with taking out and repaying the loan, including lien filing fees.

What Do I Need to Refinance My Car Title Loan?

You’ll need the following documents:

  • Title loan agreement: To begin the refinance process for a title loan, you’ll have to provide the original loan paperwork. This paperwork will specify details such as how much you originally borrowed and the interest rate you’re paying.
  • Photo identification: Must be government-issued. That includes a driver’s license, state ID, military ID, passport, etc.
  • Proof of residence: You must be able to show you reside in your current state. Credit card statements, an apartment lease, phone bills, utility bills, etc. should also be satisfactory.
  • Proof of your ability to repay: You must demonstrate you can pay the loan. Pay stubs, bank statements, invoices, tax returns, etc., will also work.
  • Car title: Because the car title is used as collateral for the title loan, it will have to be in your name.

In addition, the lender will inspect your vehicle to assess its value.

What If There are Co-Borrowers on the Loan?

If your loan has co-borrowers, the title will show both borrowers. If you’re adding a co-borrower or removing a co-borrower who will no longer be on the refinanced loan, the title will need to be updated to show the new ownership.

Can I Refinance a Car with High Mileage?

A car with high mileage is always worth less than a comparable vehicle with lower mileage. More miles often mean there’s more wear-and-tear and more maintenance and repair costs. If you’re looking to refinance the loan on a high-mileage vehicle, do consider the pros and cons of taking on a new loan for an old car. Knowing your car’s value will have to have significant value, too.

What Kind of Credit Score Do I Need for a Title Loan Refinance?

Your credit score most likely will not matter. Title loans are a lot like payday loans: short-term loans that have few to no credit requirements but have incredibly high interest rates. Because your vehicle serves as collateral, many title lenders don’t check your credit at all.

What are the Pros and Cons of Refinancing a Title Loan?

Pros

  • Better terms: A new loan may have more attractive terms, including potential lower interest rates, lower monthly payments, and no prepayment penalties.
  • Lower interest rates: If your current loan’s interest rate is higher than rates you might qualify for, consider a refinance. Lowering your payment by a percentage point or two can save you money overall.
  • Lower monthly payment: Refinancing can help reduce your monthly car payment in a couple of ways. First, if you secure a lower interest rate, the monthly payments could be lower. Second, you may be able to extend the term of your loan. For example, if you extend the term to 60 months from 48 months, your monthly payment will be lower. However, be aware that extending the term of your loan may increase the total amount of money you’ll need to pay back.
  • You might qualify for a cash-out refinance: Research what your car’s worth. If you’ve accumulated equity in your car by prepaying your original loan (and certain cars may appreciate it), some lenders might offer you a cash-out refinance. This type of loan helps you refinance your auto loan and borrow extra money based on how much equity you have in the vehicle.
  • You might qualify for a bigger loan: Using a calculation called a loan-to-value ratio, lenders will conduct a risk assessment to see how much of a loan you qualify for. When used cars are worth more, you may qualify for a higher loan amount. You can then use the extra funds to pay off other expenses like credit card bills or simply have the extra money in your pocket.

Cons

  • Costs: Auto refinancing can include a variety of costs, including application, origination, and title transfer fees. However, not all lenders charge the same fees, and some may not charge any at all. When comparing refinancing options, read the fine print and factor in all associated fees. Paying too much to refinance your car loan could cost more in the end than staying put in your current loan.
  • You might pay more interest: Getting a lower interest rate can indeed save you money. But if you extend the term of the loan, you might pay more interest over the life of the loan. However, paying extra interest over time may be worth the convenience of lower monthly payments. It all depends on what makes sense for your financial situation.
  • Repossession: The potential to have your car repossessed is the biggest risk with any title loan. Friendly loan officers are eager to dole out extra cash to borrowers with questionable credit because they know that if you don’t make your monthly payments, they can take possession of your car.

How Much Money Can I Qualify for With a Title Loan?

You might be able to qualify for a loan worth up to 50% of your vehicle’s value. Factor in loan costs and the risk of losing your transportation when deciding if a title loan is a good idea.

The amount of money you can receive with your loan depends on the value of your vehicle used for collateral.

Are Title Loans Legal?

Title loans are only legal in some states: Alabama, Arizona, Delaware, Georgia, Idaho, Illinois, Texas, Mississippi, Missouri, Nevada, New Mexico, South Dakota, Tennessee, Utah, Virginia, and Wisconsin.

In other states, they are illegal. For example, in Michigan, it’s illegal for a lender to take physical possession of the borrower’s original title when a loan is issued.

Title loans are allowed in some other states because of loopholes in their laws. For example, in California, the interest rate on title loans is capped for loans up to $2,500, so lenders typically require a borrower to borrow a minimum of $2,500. This allows the lender to charge a higher interest rate.

Check the laws in your state before you apply for any title loan.

Military Borrowers and Title Loans

The Federal Military Lending Act of 2006 requires that the annual interest rate for military borrowers cannot be higher than 36% APR. It also prohibits lenders from securing a loan via personal check, wage allotment, debit authorization, or any loan to buy a motor vehicle when the credit is secured by the motor vehicle purchased. Because of these stipulations, most title loan lenders can’t or won’t accept an application from anyone currently serving in the military.

Want to learn more about title loans? Check out this video:

Is a Title Loan Refinance a Good Idea?

It depends. The answer is usually no, but there can occasionally be exceptions if you can find more competitive rates or avoid a balloon payment that you otherwise would be unable to afford.

The Texas Office of Consumer Credit Commissioner recommends that you ask yourself these questions before any title loan or title loan refinance:

  • Do I need to borrow this money?
  • Will I be able to back the loan in full when it is due?
  • Can I manage my bills and repay this loan?
  • Can I afford late charges if I miss a payment?
  • Do I have other credit options?

Why Are Title Loans Bad?

The loan terms do not work in your favor, title loans can be expensive, with sky-high fees and annual percentage rates often topping 260%.

While these interest rates are lower than payday loans, which can have APRs of more than 600%, title loans still have high-interest rates. A 36% APR is usually considered the upper end of “affordable.” The fees and cyclical title loan borrowing can also trap you in a cycle of debt.

And if you don’t pay as agreed, you risk losing your vehicle. According to the Consumer Finance Protection Bureau, about 20% of borrowers who take out a short-term car title loan will have their cars repossessed.

Once a lender repossesses your vehicle, they can sell it, leaving you without transportation, according to the Federal Trade Commission. In some states, lenders can keep all the money they get from selling the vehicle, even if they get more than you owe.

Does Paying Off a Title Loan Build Credit?

No. Title lenders don’t report your payments to the credit bureaus, so paying the loan does not build credit. If you don’t pay, the lender typically won’t turn you over to debt collectors, it will simply repossess your car. This puts your livelihood at risk since you’ll have no transportation to work or elsewhere.

Title Loan Repayment Statistics

According to the Texas Office of Consumer Credit Commissioner, of 10 people who get a new single-payment auto title loan:

  • Two will pay the loan on time as scheduled (typically 30 days)
  • 1½ will renew 2 to 4 times before paying off the loan
  • Six will renew 5 or more times or will never pay off the loan

5 Ways to Escape Your Title Loan Without Refinancing

Negotiate with your lender

The lender would almost always prefer getting the payments over repossessing your car. If you’re struggling or have fallen behind, talk with them to see if they’ll extend your loan term to lower your monthly payment, or if you research and find that your interest rate is not competitive.

Get a cheaper vehicle

The market for used cars is complicated right now, and certain cars are in high demand. If you have a highly sought model with low mileage, you could make some cash by reselling your current car and buying an older one.

Default

This is complicated because if you choose to go this route your car will be repossessed. If you have other means of transportation it can be an option, but factor in how you’ll get to and from work.

File for Bankruptcy

Filing for bankruptcy is not cheap and could end up costing more than the total of your title loan, but it could dig you out if you’ve fallen into a financial situation that is simply not sustainable. Talk to an attorney before you make a decision if you’re considering bankruptcy as an option.

Refinance or Consolidate Your Debts

There are other ways to consolidate debt that don’t involve title loans. There are even installment loans available for borrowers with bad credit. The terms on those won’t be great but will be better than what you’d get from any title lender. Do a little bit of research before you commit to a new title loan.

More Title Loan Alternatives

Personal Loan

Even if your credit score is less than ideal, it’s possible to qualify for a personal loan. Because these loans are usually for larger amounts and longer terms, you can use them to consolidate multiple debts — including your title loan — into one larger loan with one monthly payment.

Peer-to-Peer Lending

Peer-to-peer lending platforms connect borrowers with investors who are willing to lend money to higher-risk borrowers. It can be a good alternative for people who might not qualify for a loan through a traditional financial institution.

Credit Card

If your credit score is high enough, some credit cards offer an introductory balance transfer offer that allows you to write checks to pay off your other loans and put them on your new card. You’ll pay a fee of 3% to 5%, but if you can pay the balance off before the introductory term ends you could save quite a bit of money.

Ask Friends or Family for Help

It’s an uncomfortable conversation. No one likes to admit they’re struggling. But if you have friends or family who have the means to help you it can be the best way to get your finances under control. Work out an agreement in writing, and be sure to pay them back as agreed so you don’t risk jeopardizing a friendship.

Ask About Overtime Hours or Get a Side Hustle

The gig economy has exploded, so if your current job has limited opportunities for overtime there are also options like driving for Uber or Lyft or delivering food for DoorDash.

The Bottom Line

Having to obtain a loan and agreeing to pay it back in a reasonable timeframe could be stressful and a hindrance for you. If possible try to buy a new vehicle on your own, ask a family friend to help, or get a second and third job and put away the funds for a new ride.

FAQs

What is a Registration Loan and How is it Different from a Title Loan?

A registration loan is only available in Arizona. While a title loan requires a clean vehicle title in the loan recipient’s name, registration loans only require that the car registration is in the loan recipient’s name, regardless of who the vehicle’s title may identify as the owner.

Do I need Insurance to Get a Title Loan?

Most legitimate lenders will require a vehicle to be insured before granting a title loan. Less reputable companies may often not require insurance. Another factor that plays a role is the laws of the individual states. Most states will require an individual to have car insurance to operate a vehicle.

What is a DBA and What Does It Mean on my Loan Agreement?

Doing business as (DBA) name is the name the business operates under, rather than holding the business versus its legal name. A company would use a DBA designation whenever it wants to use a name other than the official name is registered with the state agency that has authority over the business, usually the secretary of state.