Title loans have a notoriously bad rep for being difficult -- if not impossible -- to pay off. Interest rates are exorbitant and may continue to roll over monthly until you satisfy the entire balance. Meanwhile, the lender is holding your car title as collateral. There are only two ways you can get the title back. You can pull the plug on taking the loan out if you do so almost immediately, or you can successfully pay the loan off.
Getting the Loan
Title loans rarely involve credit checks, although some lenders require that you at least must prove that you're employed. Applying typically requires going to the lender with your vehicle and its title and filling out an application. The lender may arrange to have your vehicle appraised. Its value determines how much money the lender will give you in exchange for your title. Many require that the car be paid off -- there can be no other loan against it so the title is clear. You get to leave with your car, cash in hand, but you can't leave with the title. That stays with the lender.
In some cases, the lender might simply hold onto the title until you pay off the loan, but the lender also might immediately head off to the local DMV to transfer the title to its name, depending on the duration of your loan. If so, it will pass the expense on to you by tacking it onto your balance. It's not much different than if you had purchased a car with a traditional loan – until you pay the car off, the lender keeps title to the vehicle.
Changing Your Mind
You usually have a limited period of time to take your title back if you decide you don't want to go through with the loan. This is called rescinding the loan -- if you take the money back to the lender, it must return the title to you. Your loan agreement should tell you how long you have to exercise this option. It depends on state law, but it's usually not a lot of time. For example, in Virginia, you have only until the end of the next business day.
When You’ve Paid the Loan Off
If you pay off the loan, the lender is obligated by law -- and by the contract agreement you signed -- to turn the title back over to you. There shouldn't be any considerable delay if it's only been holding your title in its possession but the title is still technically in your name. Otherwise, your lender may have to notify the DMV that you've paid off your loan, just as it would have to with a traditional auto loan. The DMV then will issue a new title in your name again.
- ReadyForZero: How to Pay Off a Car Title Loan
- TitleMax: Frequently Asked Questions
- TitleMax: How to Pay Off a Title Loan
- NBC News: Auto Title Loans Riskier Than Payday Loans, New Report Says
- Bankrate: Obtaining Your Car Title After Loan Payoff
- One Way Title Loans: FAQ
- Virginia Legal Aid Society: Car Title Loans (PDF)
- freecreditreport.com: Who Keeps the Car Title During Financing?