Can I Get a Title Loan on a Financed Car?

It is generally not possible to obtain a title loan on a car that is currently financed. This is because a financed vehicle has an existing legal claim, known as a lien, which prevents the owner from using the car’s title as collateral for a new loan. While “second lien” title loans exist, they are uncommon and typically require permission from the primary lender, making them complex and often unfeasible.

Understanding Vehicle Ownership and Liens

A vehicle title is a legal document establishing ownership and records any legal claims against the vehicle. When a car is financed, the lender places a lien on the vehicle’s title. This lien serves as a legal right to the car until the loan is fully repaid. The lienholder maintains a legal interest in the vehicle, allowing them to repossess the car if loan payments are not made.

While you may have physical possession of the vehicle, the legal ownership of a clear title rests with the lienholder until the loan balance is satisfied. The presence of a lien means the vehicle owner does not possess a “clear” or “lien-free” title. This distinction is crucial because title loans require a clear title as collateral, which is impossible when a primary lender holds a claim. The vehicle’s title cannot be used to secure another loan until the original auto loan is paid off and the lien is released.

How Title Loans Operate

Title loans are short-term, secured loans where the borrower uses their vehicle’s clear title as collateral. The process begins with an application and appraisal of the vehicle to determine its value. Lenders typically offer a loan amount that is a percentage of the car’s wholesale value, often ranging from 25% to 50%. Once approved, the lender takes possession of the clear vehicle title, while the borrower retains the use of their car.

These loans have high interest rates and short repayment terms, commonly 15 to 30 days. The Annual Percentage Rate (APR) for title loans can be exceptionally high, often averaging around 300%, though rates can vary by state and lender. If the borrower cannot repay the loan, it may be “rolled over,” incurring additional finance fees and extending the debt. Failure to repay the loan can result in the lender repossessing and selling the vehicle.

Exploring Alternative Financial Solutions

Given that obtaining a title loan on a financed car is generally not feasible, individuals seeking funds have several alternative financial solutions to consider. Personal loans, available from banks and credit unions, can be either secured or unsecured. Unsecured personal loans do not require collateral and are granted based on creditworthiness, with interest rates that can range from approximately 6% to 36% APR, depending on the borrower’s credit profile. Secured personal loans use an asset like a savings account or certificate of deposit as collateral, potentially offering lower interest rates.

Credit unions often provide personal loans with more favorable terms and lower fees compared to traditional banks, as they are member-owned. Their personal loan rates can be competitive, sometimes starting around 12% to 13% APR for qualified borrowers. Debt consolidation is another option, where multiple debts are combined into a single loan, potentially reducing the overall interest paid and simplifying payments. For those facing temporary financial hardship, negotiating with existing creditors for revised payment plans or temporary deferrals might provide relief.

Some credit unions offer “payday alternative loans” (PALs), which are small-dollar loans ranging from $200 to $1,000, with an application fee capped at $20 and a maximum interest rate of 28%. These are a safer alternative to high-cost payday or title loans. Other possibilities include borrowing from family or friends, which can offer flexible terms and lower costs, or exploring traditional installment loans that feature fixed monthly payments over a longer period, making them more manageable than short-term options. Using a credit card for an emergency expense may also be a less expensive option than a title loan, as credit card APRs are typically much lower.