Car Title Loans with Bad Credit: How to Navigate this Transaction

If you have bad credit, it makes certain transactions more difficult, if not impossible. Your credit score might drop if you do not pay your bills on time. If you default on a loan or act in certain other ways, your credit score can also plummet.

Let’s talk about getting a title loan with a low credit score when you use your car.

It’s possible, but you’ll need to follow certain steps to set it up.

What is a Title Loan?

A title loan gets you money when you need it. Generally, if you want a title loan, you must approach a bank or credit union.

You might also find certain other companies that offer title loans. If you go to a company that’s not a bank or credit union, though, make sure they have an excellent industry reputation. You should make sure to research the company you use thoroughly.

The basic title loan concept involves using something valuable you already own as collateral. You might use your car if you own one. In some instances, you can put up something else that’s worth money, but the term “title loan” means car exclusively.

If you don’t have anything valuable, you can’t use this borrowing method.

Secured Loans

Title loans are what those in the banking industry call secured loans. A secured loan involves you using something as collateral.

If you do this, you risk defaulting on the loan if you don’t pay the money back through the framework you and the lender set. If that happens, you might forfeit the house, car, or other valuable property you used as collateral.

You should understand this if you borrow money this way. Risking something you prize very highly isn’t something you should do unless you need that cash quite badly and you are sure you can pay it back on time.

Are There Disadvantages When You Do This?

If you set up a title loan and use your car as collateral, you might have to pay very high-interest rates.

The interest rates usually get higher if you have bad credit.

Low credit scores make you a greater risk in a bank or credit union’s eyes. These entities might still accept you putting your car up as the asset you’re using to borrow money, but they won’t like your bad credit score.

They might raise the interest rate to make the deal seem more palatable to them.

You should also realize that title loans are short-term loans. They’re not usually longer than a few months. Because of this, you must have a concrete plan and pay back the money you borrowed relatively quickly.

Otherwise, you risk a default.

Does a Title Loan Impact Your Credit Score?

Generally, title loans do not impact your credit score if you pay back the money on time.

This can be either good or bad, depending on how you view it.

It’s good in the sense that most companies that issue you money through a title loan will not do a hard credit check on your score. It’s bad in the sense that even if you pay off the money on time, your credit score will not improve because of it.

Often, paying off debts will raise your score. You can’t count on that happening in this instance.

You can increase your credit score in other ways, though. Even if paying back this short-term loan won’t improve it, you can use other tactics to help get your credit score back into an acceptable range.

The Steps to Getting a Title Loan

If you decide, based on what we’ve explained, that you want a title loan and have a car to use, you can approach a credit union, bank, or some other lending entity. You should compare interest rates with these entities.

You want the one that has the best rates, though you should consider other factors as well.

You should see which entity has a solid reputation. Something like a large local bank probably has one. A fly-by-night lending company you find online likely isn’t your best bet.

If you’ve got a low credit score, you should also ask the entity lending you money whether they do a hard credit pull. These credit checks lower your score, and if it’s not so great already, this certainly won’t help it.

You should find a lending entity that doesn’t do hard credit checks. You’ll then meet with the lending entity to discuss the loan’s details. Alternatively, you might skip this meeting if you’re getting the loan approved online.

You can do an online approval process, but if you go this route, ensure you understand all the loan’s details. You must read all the fine print. If you don’t understand anything, ask questions. You don’t want to sign until you know all the agreement’s finer points.

You do not have to give the lending entity your car, even though you’re using it as collateral.

You can continue using it while you’re paying back the title loan.

You must pay back the loan in the time frame the loan mentions.

These short-term loans will come due quickly. Make sure you have the framework ready to make the money you’ll need and pay it back on time, including the interest rate the lender set up as part of the loan repayment plan.

Is a Title Loan for You?

Even with bad credit, you can usually secure a title loan if you have a car, and it is your most valuable asset. These loans carry some risks, but so does any other loan.

Only use this method if you have a steady job that you feel sure will pay you enough so you can pay back the loan on time. If you don’t know how you’ll get the money to pay back the loan, don’t accept it. If you do, your credit might end up in much worse shape.