Title loans, also known as “auto equity loans,” allow borrowers to bridge temporary gaps in income by putting their car up as collateral for a loan. Title loan companies use the equity in your paid-off vehicle to determine the size of the loan, and, unlike collateral loans through pawn shops, title loans allow you to keep your property while you pay off the loan. If you default, the lender will seize the vehicle and sell it to recoup the loan funds. Only the owner of a vehicle can use the car as collateral for a title loan.
You must provide the title loan company with your driver’s license and Social Security number so it can verify your identity. If you own a vehicle but are not licensed to drive, lenders will accept a valid state-issued ID card, military identification or passport.
Title loans are not available in all states, so you must prove that you live in a locality that allows them. Residency documents also help verify your identity. Lenders need to see a recent utility or phone bill, along with your house deed, lease or a statement from your landlord.
Although you are providing collateral for the loan, you must still prove that you can afford the monthly payments. Title loan companies require one to four weeks of pay stubs from wage earners. Self-employed borrowers must provide one to three years of tax records, business financial documents and bank statements. Unemployed borrowers who rely on public assistance or Social Security must provide statements from the department of social services or the Social Security Administration. Retired borrowers can provide pension, SSA or retirement account statements.
To prove you are the rightful owner of the car and that there are no current liens, you must furnish the vehicle title and registration. Title loan companies also require proof of insurance so they are protected against loss if the car is damaged or stolen. If the car was under a previous lien that was recently released, you must provide the lien release paperwork from the previous lienholder.
Most title loan companies require at least two references, although many require three to five. While the lenders claim that references help them determine your character and ability to repay the loan, title loan companies usually do not contact your references unless you default and they are unable to contact you. Most lenders require at least one personal and one professional reference. Include your references’ names, phone numbers and their relationship to you.
Lauren Treadwell studied finance at Western Governors University and is an associate of the National Association of Personal Financial Advisors. Treadwell provides content to a number of prominent organizations, including Wise Bread, FindLaw and Discover Financial. As a high school student, she offered financial literacy lessons to fellow students.