Can You Get a Title Loan While Still Making Payments?

Title loans are a type of short-term, secured lending designed to provide individuals with quick access to funds. These financial products allow borrowers to leverage the value of their vehicle to obtain cash. The vehicle’s title acts as collateral, securing the loan amount. This arrangement offers a pathway to immediate liquidity.

Basics of Title Loans

A title loan fundamentally involves using a vehicle’s clear title as collateral for a cash loan. The borrower temporarily surrenders the physical vehicle title to the lender, but retains possession and use of their vehicle throughout the loan term. These loans are typically short-term, often requiring repayment within 15 to 30 days, though some lenders may offer longer terms. The loan amount is usually a percentage of the vehicle’s wholesale market value, commonly ranging from 25% to 50% of its worth.

The amounts borrowed can vary significantly, depending on the vehicle’s value and the lender’s policies. However, title loans are associated with high costs, often featuring annual percentage rates (APRs) that can average around 300% or even higher, reaching up to 391%. These high rates mean that borrowing can incur substantial finance charges and additional fees, such as processing, document, or loan origination fees, making the total repayment amount considerably higher than the principal borrowed.

Title Loans with an Existing Car Loan

Obtaining a title loan with an existing car loan is complex. Lenders typically require a “clear title,” meaning the vehicle is owned outright without liens. However, some lenders may consider applications if the borrower has significant equity, which is the vehicle’s market value minus any outstanding loan balance.

When an existing loan is present, the original lender typically holds a lien on the vehicle’s title, signifying their legal claim to the asset until the debt is fully repaid. In such cases, a title loan might be structured as a “second lien title loan,” where the new lender places a secondary claim on the vehicle. This is not universally offered, and the feasibility depends on the vehicle’s current market value, the amount still owed on the original loan, and the specific policies of the title loan provider. Some title lenders may even offer to refinance the existing car loan as part of the new title loan, paying off the initial lienholder and combining the remaining balance with the new funds.

The Title Loan Process and Terms

The process for obtaining a title loan involves several straightforward steps. Applicants typically begin by completing an application. Lenders usually require a physical inspection or appraisal of the vehicle to determine its market value and condition.

Several documents are required for the application. These include the vehicle’s title, a valid government-issued identification, proof of income to demonstrate repayment capability, and proof of residency. Once approved, the loan amount, which is a percentage of the vehicle’s appraised value, is offered, and the borrower then reviews and signs the loan agreement.

Repayment terms for title loans typically involve fixed monthly payments that include both principal and interest. While many loans are short-term, some lenders may offer repayment periods ranging from several months to a few years. Most title loan agreements do not include prepayment penalties, allowing borrowers to pay off the loan early without incurring additional fees. However, failing to make payments as agreed constitutes a default, which can lead to severe consequences, including the repossession of the vehicle. Lenders have the legal right to seize and sell the collateralized vehicle to recover the outstanding debt, and borrowers may still be liable for any remaining balance if the sale proceeds do not cover the full loan amount and associated fees.