Can You Get a Title Loan With a Financed Car?

It is possible to obtain a title loan even if your vehicle is currently under finance, though this process presents specific considerations. A title loan allows individuals to use their car’s title as collateral for a short-term, high-interest loan, providing a source of quick funds. This article will explore the nuances of securing a title loan on a financed car, where a lender already holds a claim on the title.

Understanding Title Loans with an Existing Lien

A title loan is a type of secured loan where a borrower pledges their vehicle title as collateral to receive a lump sum of money. These loans are typically short-term and are known for their high annual percentage rates. Unlike unsecured loans, title loans do not primarily depend on an applicant’s credit history, making them accessible to individuals with varying credit profiles.

When a car is “financed,” it means a loan was taken from a financial institution, like a bank or credit union, to purchase the vehicle. Until this loan is fully repaid, the original lender maintains a lien on the car’s title. This lien represents a legal claim on the vehicle, giving the lender the right to repossess it if loan payments are not met. This is why getting a second loan against an already-liened vehicle is often referred to as a “second lien title loan.”

The possibility of securing a title loan on a financed car hinges significantly on the concept of “equity.” Equity in a vehicle is the difference between its current market value and the outstanding balance remaining on the primary auto loan. While some title loan lenders typically require a clear title, meaning the car is fully paid off, some will consider lending against the existing equity in a financed vehicle.

Lender Considerations for Financed Vehicles

When a title loan lender considers an application for a vehicle with an existing lien, their primary focus is on the amount of equity present. A title loan lender taking a secondary lien position would only receive payment after the original car loan lender is satisfied in the event of default or repossession. This makes second lien title loans a higher-risk proposition for the new lender.

Lenders will assess the vehicle’s market value to determine its worth. They then subtract the outstanding balance of the primary loan to calculate the available equity. Many title loan companies will only lend a percentage of the vehicle’s equity, even if there is significant equity.

The primary lender holds the first claim on the vehicle, meaning they have priority over the second lienholder in case of default or liquidation. Because of this, some title loan lenders may require permission from the first lienholder before placing a second lien on the title. This process can be more complex and not all title loan lenders offer second lien options due to state restrictions and other complications.

The Application Process and Requirements

The process for applying for a title loan on a financed car generally begins with a loan inquiry. Applicants typically need to provide basic information about their vehicle, their financial situation, and details about their existing auto loan.

Lenders will require specific documents to verify information and assess eligibility. These commonly include a government-issued identification to confirm identity and match the name on the title. Proof of income is usually necessary to demonstrate the ability to repay the loan, even though credit checks are often not a primary factor.

Applicants must provide details of their existing loan, including the outstanding balance and original loan terms. Lenders will often verify this existing loan balance and conduct a thorough inspection of the vehicle to assess its condition and value. Proof of residency and vehicle registration are also standard requirements.

Impact on Vehicle Ownership and Debts

While the borrower retains possession and can continue driving the vehicle, the title loan lender places a second lien on the title. This lien signifies the lender’s legal right to the car as collateral until the new loan is fully repaid.

The legal hierarchy of liens is important in this situation. The primary lender, who financed the original car purchase, holds the first claim on the vehicle. This means that in the event of a default on either loan, or if the vehicle is repossessed and sold, the proceeds would first be used to satisfy the original auto loan. The second lienholder, the title loan lender, would only receive payment from any remaining funds after the first lien is fully satisfied.

Managing two secured debts on a single asset increases the financial burden and the risk of repossession. If payments are not made on the title loan, the title loan lender has the right to repossess the vehicle. If repossession occurs, the car may be sold at auction, with the proceeds distributed according to the lien hierarchy. If the sale price does not cover both outstanding loans, the borrower may still be responsible for the remaining balance of the debts, depending on state laws.