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Consider Alternatives Before Obtaining Auto Title Loan

Q: What is an auto title loan?
A: When you apply for an “auto title” loan, the lender will use the title to your vehicle as security for a short-term loan—usually for a small amount ($500-$1,000). Typically, your vehicle must be paid off or you must have only a small balance left on your vehicle purchase loan to get an auto title loan.

Q: How do I get an auto title loan?
A: Auto title lenders use your auto title rather than a post-dated check as collateral for the loan. To get an auto title loan, you would present identification, pay stubs, verification of your street address, a clear title to your car, your vehicle and an extra set of car keys (so the lender can repossess your car without having to tow it, in the event you do not pay back the loan). The lender will assess your vehicle to determine how large a loan your vehicle qualifies you to receive. Next, the auto title lender will put a lien on your vehicle’s title. The lender will keep your vehicle title, but will not transfer the title to the lender’s name. Then, the lender will give you a check, typically payable within 30 to 60 days. The lender will only return your vehicle title to you once you repay the loan in full.

Some auto title lenders use the credit service organization (CSO) model for auto title lending. This method involves 1) the auto title lender with a CSO license, 2) a third-party lender and 3) the borrower. The auto title lender gets the CSO license from the Ohio Department of Commerce, and offers you an auto title loan provided by a third-party lender. The third-party lender is licensed by the Ohio Department of Commerce to lend under either the Small Loan Act or the Mortgage Loan Act. Under this CSO model, the auto title lender will charge you (the borrower) a brokering fee and the third-party lender will charge you fees and interest on the loan.

Q: What happens if I cannot make the payment on my auto title loan?
A: Because you have given your vehicle title as security for the loan, the lender can repossess your vehicle if you do not repay the loan—or the lender may give you the option of refinancing or rolling over the loan.

Q: What are some advantages and disadvantages of getting an auto title loan?
A: You can usually get an auto title loan quickly and easily, assuming you own a car and owe little or nothing on your original vehicle loan. There are also very few underwriting requirements, so you are likely to be approved for an auto title loan if you own your vehicle. 

Because you have to put your vehicle title up as collateral to get an auto title loan, your vehicle can be repossessed if you cannot pay back the loan. As long as you carry the loan, the lien will be in place on your vehicle. This means you cannot sell or transfer your vehicle or renew your license. Also, the interest rate for an auto title loan is high. This can be a problem, especially if you have to refinance or roll over the loan. The effective annual percentage rate for an auto title loan is typically 300 to 700 percent.

Q: What’s the difference between a payday loan and an auto title loan?
A: Security for a payday loan is a post-dated check, while security for an auto title loan is your vehicle. For both types of loan, the interest generally exceeds 300 percent.

Q: I don’t want to pay a high loan rate and risk losing my car, but I need money fast. What are my options?
A: Think about doing the following:
Shop around for a loan with the lowest rate. Consider getting a small loan from your credit union, bank, family or friends. Even a pawn shop loan can be less expensive than an auto title loan.
Ask your creditors for an extension. If you are having cash-flow problems, many creditors will give you more time to pay your bills. Ask what they will charge for this service.
Make a realistic budget and cut expenses, especially if you run short every month. 
Start a savings account.
Consider getting financial counseling from a nonprofit debt counseling service such as Apprisen (www.apprisen.com​).

12/9/2013

This “Law You Can Use” column was provided by the Ohio State Bar Association. It was prepared by Akron attorney Terry Zimmerman of Kaffen & Zimmerman, and Ram Mayeker of Apprisen, a nonprofit consumer credit counseling agency, with assistance from David Rothstein of NHS, Greater Cleveland. 
Articles appearing in this column are intended to provide broad, general information about the law. Before applying this information to a specific legal problem, readers are urged to seek advice from an attorney.

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