Just like any industry, you’re bound to come across dozens of myths and unknowns that people bring up about title loan providers. Some of these misconceptions aren’t true, and others don’t make much sense. Discussing financial options and different lending and finance terms is always confusing. But it’s essential to know how a car title loan works and what to expect when you first apply and then get funded.

At Premier Title Loans, we’ve heard more misconceptions about title loans than we can ever list here. The fact is, most customers don’t know exactly what’s required or what legal protections they have when dealing with an unscrupulous lender. Let’s get right into our top title loan myths about title loans!

Common Myths About Car Title Loans

1: You must hand over your keys when you take out a title loan.

This myth has been around for years, and it once had some validity. A few decades ago, the only companies that provided car equity loans were pawn shops and mom-and-pop lenders. Much like you would expect to happen if you pawned a guitar or diamond ring, you often had to hand over or “pledge” your vehicle as collateral. These days, financing arrangements in which you hand over both the pink slip and the keys are rare. Most online title loan lenders will gladly settle for the pink slip alone.

We know a few pawn shops and title loan companies still require borrowers to hand over the vehicle as collateral. Many of these services are marketed in pawn shops and need the car itself as collateral, rather than just the vehicle’s pink slip. The others are online lenders who work with risky borrowers. With many financing options available today, we recommend avoiding these services, as they can sometimes lead to a title loan repossession. Work with a title loan service that lets you pay off a loan early and lets you keep the keys to your car!

2: You’ll be charged high rates from the start or a pre-payment penalty if you pay off your title loan early.

Car title loan companies are similar to mortgage companies, traditional banks, and credit unions. In that there’s a lot of competition for your business. If you’re a qualified applicant, there will likely be multiple title loan companies vying for your business. But they won’t automatically give you a low rate or reasonable payment terms if you don’t ask! Take a mortgage provider, for example. The competition in this industry is very high. We know customers shop around for the best rates and finance amounts. So, a bank or mortgage lender will proactively offer the lowest possible rate. Compare that to what you see with vehicle title loans. Many of these companies are giving out the industry-standard rates.

Most consumers fail to shop around for lower interest rates because they believe there’s no flexibility. Take Premier Title Loans as an example when looking to improve contract terms. Even with this site, you should ask your customer service rep if there is any way they can lower the total fee. Consider the amount of money a car title loan lender loses when they decline a consumer for any reason. Now, consider how many more applicants they can bring in by lowering their rates. Don’t hesitate to ask your lender if they can reduce your loan’s rates. It never hurts to ask, as the worst thing they can do is say no!

3: Interest rates are always high with a title loan

Looking at some title loan contracts, you’ll see interest rates that approach 100%. That’s why these loans should only be considered for a financial emergency and when you can’t qualify for an unsecured personal loan. However, in some states, the APR for a title loan is similar to that of other bank loans and credit card cash advance fees. For instance, a licensed lender offering title loans in New Mexico with amounts between $2,500 and $10,000 caps its rates at 36%. That type of interest rate isn’t bad for a loan where your credit score isn’t a factor.

Treat a car title loan as a short term obligation by paying it off as quickly as possible. Instead of paying finance charges month after month, you need to do whatever it takes to pay it off in weeks instead of months or years. Contact your title lender before you take out the loan. Confirm with them that you won’t be subject to a prepayment penalty if you pay off the online loan amount early. By doing this, you can get out from under the high APR loan obligation, and the creditor will get the money they lent back.

4: You won’t qualify for a title loan if you have bad credit or no credit history

Walk into a bank or credit union, ask for a mortgage equity or personal loan, and see how quickly your application will be denied because of poor credit! It’s the complete opposite when you apply for bad credit title loans. This is one of the biggest myths about car title loans, and we tell new customers that their credit history is far less important than the equity from their car or truck. When you use your vehicle as collateral for a loan, you add the lender as a lienholder to your vehicle. That gives them far more leeway to offer higher loan amounts and approve loans they would never have signed off on if they were unsecured.

We’ve discussed the negatives of this type of secured loan many times, and there’s always a risk you could lose your vehicle due to missed payments. Conversely, you can qualify for car title loans with almost any kind of bad credit. There may even be situations where you can sell a car with a title loan on it. A title loan company wants to know how much collateral you bring to the table in the form of your vehicle. The more equity your car has, the more cash you can borrow with a title loan.

Most lenders know they can repossess and sell your vehicle to recoup the initial investment if things go wrong. Someone needs to weigh the two different scenarios. Do I need a short term loan so severely that I’m willing to use my vehicle as collateral for a title loan? Or can I qualify for another unsecured loan that doesn’t require me to hand over the car’s title?

Whatever you think about title loans, the risks can be acceptable in some cases if you have nowhere else to turn. Call Premier Title Loans at 800-250-6279 to apply and see if a secured loan is right for you!

Jessica Chase

Jessica has been working in the title loan lending industry since 2012. Before that, she managed a team of customer service representatives for one of the largest payday loan companies in the US. Since coming to Premier Title Loans, she’s overseen our sales and marketing department and looks forward to educating consumers on their different financing options. Jessica is always open to feedback and questions related to short term loans!