5 Factors that Contribute to Car Title Loan Rates

A car title loan uses the equity you have in your car as collateral for immediate financing. You will place your title on hold with the lender, and the lender will technically own your car until the loan is paid off. As a secured loan, this type of option is typically less expensive than a loan without collateral. However, the expense depends on a number of factors.

#1 Personal Credit

Many people seeking car title loans are not credit worthy enough to gain financing through other means. If your credit is below 700, you may experience a slightly higher rate on your car title loan. If your credit is below 600, you can expect a greater expense in order to gain the funds, and your terms may be less flexible.

#2 Equity in Vehicle

You can get a car title loan against an automobile you do not own outright. In this case, the title loan lender will be taking a subordinate position to the primary auto loan lender. This means, in the case of a bankruptcy or double-default, the auto loan lender would be repaid first with money secured through repossessing and liquidating the car. The title loan lender may lose out, and this lender will charge you more in interest as a result. You will find lower interest rates on title loans if you own the car outright.

#3 Other Debts

The other debts you hold, not just your car loan, can also affect the rates you receive on a car title loan. The most senior debts are those to the government, such as tax debts. Mortgages tend to be next in line. If an auto title lender can see it will be far down the line should you go bankrupt, the lender will be taking a greater risk in extending you the loan. Having multiple other senior debts, then, can result in a higher interest rate on any future loan.

#4 Terms

You can negotiate lower rates on most loans by adjusting the terms you choose. For example, electing a short-term loan over a long-term loan will get you a lower rate. Similarly, agreeing to high fees if you are late on payments or modify the loan can mean savings in your interest rate. Once you get a loan quote from a lender, ask about changing around terms to get the rates you desire. Typically, the lender can find a middle ground that offers you the best rates with less favorable terms.

#5 Credit Market

There are some items outside of your control that will affect your interest rate. The credit market is one of those items, and there is nothing you can personally do to impact whether or not lenders are making loans and at what interest rate. If rates are low on the market, you may get a low rate. However, this can be an indication that credit is tight. Choosing a time to borrow when credit is fairly easy to come by but rates are still relatively low will help generate the best rate on your personal loan.


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