Car Title Loans: How They Work and Why One in Five Ends in Repossession

A title loan puts your car up as collateral for a short, expensive loan. If you need the car to get to work, the stakes are higher than the loan amount suggests.

This guide is general information for borrowers in the U.S., not financial or legal advice. Lending laws differ by state and change over time; check with your state's financial regulator or a nonprofit credit counselor about your situation.

Key points

1. A title loan uses your paid-off car as collateral, often for 30 days.
2. A typical fee of 25% a month works out to an APR of about 300%.
3. The CFPB found one in five single-payment title loan borrowers had their vehicle seized.
4. Most title loans are renewed rather than repaid, so the fees keep coming.

A car title loan lets you borrow against a vehicle you own outright. You hand over the title, the lender hands over cash, and you have a short time, often 30 days, to repay the loan plus a fee. If you don’t, the lender can take the car.

What it costs

The Federal Trade Commission notes that title lenders often charge a fee of about 25% of the loan per month, which equals an APR of roughly 300%.

Many loans also carry add-on charges, such as fees for roadside assistance plans or document processing. They should all appear in the finance charge and APR the lender must disclose before you sign.

What the CFPB found

In a 2016 study of almost 3.5 million single-payment title loan records, the Consumer Financial Protection Bureau found that:

• One in five borrowers had their vehicle seized for failing to repay.
• More than four in five loans were renewed on the day they were due, because borrowers couldn’t repay in one go.
• More than two-thirds of title loan business came from borrowers who took out seven or more loans in a row.

A typical loan in that data was around $700. Paying a $175 fee month after month to keep a $700 loan alive is how many borrowers end up paying more in fees than they borrowed, and still owing the full amount.

Before you sign

1. Check whether title loans are legal in your state, and confirm the lender is licensed. See how payday and title loan laws vary by state.
2. Ask what happens if you’re late. Find out how long you have before repossession, whether you’ll get notice and whether you can catch up.
3. Ask about installment options. Some states require or allow longer repayment schedules.
4. Read the add-ons. Optional products can be declined.
5. Count the car’s real value to you. If losing it means losing your job, the risk is far bigger than the loan.

Be careful

Active-duty service members and their families are covered by the Military Lending Act, which caps most consumer loans, including title loans, at a 36% annual rate. A title loan offered to a covered borrower at 300% breaks that law; see the Military Lending Act.

Options that don’t put your car at risk

A credit union payday alternative loan of up to $2,000 has an APR cap of 28%. Asking your creditors for more time, or getting help with rent or utilities, can shrink the amount you need; our list of help to try before borrowing is a good place to start.

Common questions