When it comes to fast cash options, title loans are a popular choice, especially among those who don’t have the best credit since there’s no credit check required to get one. Besides that, there are many other pros of getting a title loan, but it’s important to understand exactly how they work to ensure that […]
When it comes to fast cash options, title loans are a popular choice, especially among those who don’t have the best credit since there’s no credit check required to get one. Besides that, there are many other pros of getting a title loan, but it’s important to understand exactly how they work to ensure that this is the right option for you.
Title loan laws will determine what’s required to get your title loan and how the loan is setup. Here’s what you need to know about the legal regulations that cover title loans.
Federal Title Loan Laws
The first thing to understand about title loans is that each title loan company must comply with federal law and state laws in their state of residence. Most of the laws that govern title loans are state laws, which means the way a title loan works can vary significantly based on which state you’re in.
The only federal law for title loans is an age minimum of 18 years old.
State Title Loan Laws
The best way to learn about how title loans work in your state is to look up your state’s laws. There are several areas of the title loan process that state laws will govern.
The Title Loan Application Process
State law determines what the lender needs to get from you when you apply for a title loan. In most states, title loan companies will only need you to bring the following three things:
- Your government-issued ID
- Your car
- Your car title
The ID is because of that federal age minimum – the lender needs to verify that you’re 18 or older. You need to bring your car with you so that the lender can verify you have it and evaluate it condition. The car title stays with the lender until you’ve paid off your loan. Some states allow the lender to get a set of duplicate car keys from you or to put a GPS tracker on your car.
Most states don’t require lenders to see proof of your income, but a few do. In these states, the lender will need to verify that your title loan payment won’t exceed a certain portion of your income.
Title Loan Interest Rates Limits
There are many different ways title loan interest rate limits can work. Several states don’t put any sort of limit on title loan interest rates. Some put a set limit, such as 20 or 25 percent per month, on title loans.
Although the above options are the most common, there are states that have more unique limits in place. For example, some states base the maximum interest rate on the amount borrowed, with the maximum allowable interest rate decreasing as the amount borrowed increases. Others have a maximum interest rate that goes down if the title loan is extended past a certain length of time.
Title Loan Terms
States may set minimum or maximum title loan term lengths. Title loans are intended for short-term use, and you’ll find that most lenders go with 30 day terms. A select few states have a minimum title loan term length longer than 30 days, though.
There is also an extension option with title loans, where you pay at least any fees or interest to carry your loan principal into a new term. Some states let you do this indefinitely. Others simply set a hard limit, such as 180 days, and require the title loan to be paid in full by then.
There are also states that require you to start paying down your loan principal after a certain number of extensions. For example, in Idaho, after you extend your title loan twice, you then need to pay off at least 10 percent of the loan principal every time you extend it going forward
The Repossession Process
If you don’t make your title loan payment, that’s what’s known as a default. In some states, as soon as you default, the lender can repossess your car and sell it at an auction. In others, the lender must give you a certain time frame as a right to cure, or catch up on your payment. If you catch up before the right to cure is over, the lender can’t repossess your car.
Selling Your Car
State law also covers two situations that can occur with the sale of your car:
- A deficiency balance
- A surplus balance
With a deficiency balance, the sale of your car didn’t cover what you owed. Some states allow the lender to bill you for this, whereas others do not.
With a surplus balance, the sale of your car covered more than what you owe. Some states let the lender keep this, whereas others require them to pay you this amount.
The areas listed above are the main ways that title loans can differ depending on what state you’re in. Now that you know what to look for, you can check out the laws for title loans in your state.