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 some don’t make 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.

Common myths we hear about car title loans.

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

This myth has been around for years and in the past, it used to have some validity. A few decades ago, the only companies that provided car equity loans were pawn shops. Much like you would expect to happen if you pawned a guitar or diamond ring, you had to hand over your vehicle as collateral. These days, financing arraignments where you hand over both the pink slip and keys are rare. Most online lenders will gladly settle for only the pink slip. They know you need a vehicle to get around and drive to work. After all, how could you get to an office or place of business if you don’t have a car?

We know a few pawn shops and title loan companies still requiring borrowers to hand over the vehicle as collateral. Many of these services are marketed in pawn shops. The others are online lenders who work with risky borrowers. As many financing options are available today, we recommend avoiding these services, which 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!

Fees to pay off a title loan early are the same, no matter which company you work with.

Car title loan companies are similar to mortgage companies, traditional banks, and credit unions. Many of these service providers seek new business and loans to write. That means there’s a lot of business competition. But they won’t automatically give you a low rate or good term if you don’t ask! Take a mortgage provider as an 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 provide the lowest rate possible. 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 amounts 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 amount of fees. Consider the amount of money a car title loan lender loses if they pass on a consumer for whatever reason. Now, think about how many more applicants they can bring in the door by lowering the rates on their secured loans by a small amount. Don’t hesitate to ask your lender if they can reduce the rates or make the financing terms more favorable. It never hurts to ask, as the worst thing they can do is say no!

You will always pay a considerable interest when you take out a loan.

Indeed, a car title loan often comes with a huge APR. Looking at any lender finance contract’s loan agreement or fine print, you’ll see an interest rate that could approach 100%. On paper, this is a tremendous amount of money. It will be a large sum if a borrower takes out the loan and doesn’t pay it off early. That’s why looking at a car equity loan is more critical than a quick emergency fix. Let’s say someone takes out a  title loan payable over 2 years. It will be high when you factor in the APR over 24 months. Even after 30 days, the amount will be high!

Treat an online car title loan as a short term obligation by paying it off as quickly as possible. Instead of paying finance charges month or 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 back that they lent out.

You can’t qualify for a title loan with bad credit or no credit history.

Walk into a bank or credit union and ask for a mortgage equity or personal loan. The banker’s first question will probably be about your credit score. They’ll want to know what your FICO score is and if you have any past due debts or loans. Getting a credit card or installment loan is next to impossible if you have poor credit. It’s the complete opposite when you apply for bad credit title loans. When you use your car as collateral for a loan, you tell the lender the car is theirs if you default or can’t fulfill your contractual obligation.

We’ve discussed the negatives which come with this type of secured loan many times, and it’s risky. Conversely, you can qualify for car title loans with almost any kind of bad credit. The 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 pink slip financing. Most lenders know they can repossess and sell your car if things go wrong to recoup the initial investment. Someone needs to weigh the two different scenarios. Do I need a short term loan so bad that I’m willing to use my auto as collateral for the online title loan? Or can I qualify for another unsecured loan where I don’t need to hand over my pink slip?

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!