When searching for emergency cash, you may have found that car title loans and personal loans are popular loans that can provide you with fast financial relief. If you’re a first-time applicant, it can feel overwhelming to decide between your options. So, what financial resource is the most beneficial? If you’re stuck between title loans vs. personal loans, the next step is to get the information you need to make an informed decision and see which one works best for your financial situation!
Understanding Personal Loans
A personal loan can be unsecured or secured by a form of collateral, and allows you to borrow money in a lump sum. You are expected to repay the loan in fixed monthly installments over a set period of time, typically anywhere from one to five years. Eligibility for a personal loan will largely depend on your credit history and your income, along with your debt-to-income ratio. If you don’t have a good credit score or a reliable form of income, getting approved for a personal loan can be challenging.
A personal loan lender will ask you to submit documents to verify your information, including proof of address, a valid, government-issued photo ID card to confirm your age and identity, and proof of income. If you’re eligible for a personal loan, you are entitled to see your loan agreement in writing before you sign the contract. Once you have read through the paperwork, you can review your loan terms to decide whether to proceed with your application. The loan amount you can potentially access through a personal loan can range from a few thousand to tens of thousands of dollars, but the total amount of cash you receive will ultimately depend on your creditworthiness. The personal loan process can typically take anywhere from one to five business days.
The repayment process starts within thirty days of your loan proceeds being disbursed into your bank account. If you miss a payment, a personal loan lender may charge you a late fee and leave a negative mark on your credit report. The derogatory status on your credit report will generally last up to seven years, making it more difficult for you to qualify for loans or new credit in the future. Defaulting on a personal loan can result in the lender selling the unpaid balance to a debt collection agency that will attempt to retrieve the outstanding amount from you. The personal loan providers or their debt collectors may pursue legal action if you make no effort to repay what you owe.
Understanding Title Loans
Auto title loans, otherwise known as car title loans or pink slip loans, are secured loans that allow you to access a portion of your vehicle’s available equity and use the funds for medical bills, urgent home renovations, or other expenses. Unlike unsecured personal loans, you don’t need a good credit score to qualify for funding since you’re required to pledge your car’s title as collateral for the loan.1 If you’re eligible for a title loan, a lien is placed on your title once the loan is funded. You can still drive your vehicle throughout the repayment period as long as you prioritize your title loan payments and keep your loan in good standing!1
While car title loans are much more flexible than personal loans regarding credit requirements, a title lender may still conduct a credit check during the application process. A credit check can help a title lender determine your ability to handle loan payments, so it can be an essential part of a title loan application. Thankfully, the value of your vehicle and your income are the main characteristics lenders will use to determine your eligibility and loan amount. Your credit history is reviewed during your application, but it is not as important as the two aforementioned factors! You can potentially borrow up to half or more of your car’s value through an auto title loan.1
When applying for a vehicle-secured loan, you can expect to provide several documents to verify your application details, just like a personal loan. Although the exact items tend to vary depending on your state of residence, you can expect to submit the following paperwork during your title loan request:
- Evidence of Income
- Proof of Your Current Address
- The Title of Your Vehicle
- Recent Pictures of the Interior and Exterior of Your Car
- Driver’s License or Another Valid, Government-Issued Photo ID Card
If you qualify for an online car title loan, you can receive your title loan proceeds as soon as the next business day, and you will be able to access some convenient ways to repay your loan.3 Similar to personal loans, you are expected to make payments to avoid the consequences of defaulting on your loan. The main difference between defaulting on a title loan vs. a personal loan is that a title loan lender can repossess your car and sell it at auction to recover the unpaid balance. However, you can try to avoid the issues of a car title loan default by communicating with your lender or title loan company to explore your available options during a tough financial situation.
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What are the Key Differences Between Car Title Loans and Personal Loans?
The main difference between title loans and personal loans is that auto title loans are always secured by collateral, but personal loans can be unsecured. Personal loans generally have longer repayment terms, typically lasting up to five years, and often have a minimum of twelve months. In some cases, a personal loan lender can give a borrower a loan term of up to seven years, which means the borrower may have lower monthly payments in comparison to a shorter repayment period. However, a longer repayment period typically coincides with paying more in interest over the life of the loan, which can complicate the entire loan experience.
With a car title loan, you can expect a loan term shorter than seven years. The length of your loan term can vary depending on the title lender you work with, as repayment periods can range from 30 days to up to 48 months in some cases. Additionally, you can expect a much more flexible application process than personal loans because you are required to use collateral to secure the loan.
Although some personal loans can be secured with collateral (car, home, etc.), the terms of your loan are largely impacted by your current credit history. When applying for an auto title loan serviced by LoanMart, you can access flexible loan terms and a convenient repayment process, even if you have bad credit.1
As mentioned above, a personal loan amount can typically range from a few thousand to tens of thousands of dollars. You can borrow up to $15,000 if you’re eligible for an online title loan serviced by LoanMart.1
Lastly, another major difference between these two loan options is the time it takes to complete the loan process. Personal loan lenders may take a few business days to process your documents, determine your eligibility, and send the funds to your bank account or home address. But applying with an online personal loan lender often translates to a speedier and more efficient application process.
Applying for auto title loans serviced by LoanMart is known for being as streamlined as possible, with applicants receiving cash in as little as 24 hours! In some cases, an eligible borrower can get their money the same day they apply when choosing an online car title loan serviced by LoanMart.3
Below is a summary of the key differences between title loans and personal loans:
| Feature | Title Loan | Personal Loan |
Collateral | Requires Vehicle Title as Collateral | Generally Unsecured, but Some Personal Loan Options May be Secured by an Asset |
Credit Check | Some Lenders May Run a Credit Check, but Applicants with Low Credit can Still be Approved1 | Requires Credit Check; Approval Primarily Depends on the Borrower’s Credit Score and Income |
Interest Rates | APR Tends to Vary Based on State of Residence and Lender | APR Will Vary Based on the Borrower’s Creditworthiness and State of Residence, Along with the Lender |
Loan Amounts | Often Limited to Half or More of the Car’s Value; Amounts Can Range from $100 to $10,000 or More | Can Range from $1,000 to Tens of Thousands of Dollars, Depending on Creditworthiness |
| Repayment Terms | Varies by State and Lender, but Usually 30 days to Several Months | Longer Terms (Typically 1-5 years) |
| Processing Speed | Fast Approval, Same-Day Funding in Some Cases3 | Slower Processing Times, Unless Working With An Online Lender. Generally, Takes a Few Days |
Risk | Risk of Losing Your Vehicle if You Default | Default May Result in the Lender Selling Your Debt to Collections or Pursuing Legal Action |
How Do Interest Rates on Auto Title Loans Compare to Unsecured Personal Loans?
A loan’s interest rate is a pivotal part of your lending experience since it’s one of the main factors determining the total amount you’ll repay over the life of the loan. If you qualify for a loan with a high interest rate, you’ll pay more to borrow money from a lender. Unfortunately, personal loan lenders tend to offer a high interest rate to an applicant with bad credit because they pose a higher credit risk.
Since auto title loans are backed by collateral, a qualified applicant can expect to access competitive interest rates. Additionally, for car title loan serviced by LoanMart, there are zero prepayment penalties, balloon payments, or hidden fees!3 5
Call a LoanMart title loan agent at 855-422-7412 if you have questions about title loans and interest rates. A title loan representative is available six days a week to assist you with your loan application.
What Disqualifies You from an Online Title Loan or a Personal Loan?
No matter which loan you decide to apply for, you are not guaranteed to get approved for funding. Not all applicants can receive the funds they need for an emergency financial situation! The exact reason for disqualification may vary with each application, but there are some common scenarios where an applicant will not qualify for a personal loan or a title loan.
When it comes to personal loans, an individual may be disqualified for funding if:
- They Have a Very Low Credit Score or a High Debt-To-Income (DTI) Ratio
- They Cannot Provide Enough Proof of Income During Their Application
Finding another source of income for a personal loan application is manageable in some cases, but it’s challenging to build your credit history and lower your DTI! If you have an urgent medical bill or rent payment, you may not have enough time to work on increasing your credit score before starting an application. Applying for a personal loan under those conditions seems impossible, but a car title loan may be an alternative option to consider when you’re in a financial bind.
Some of the most common reasons an applicant may not qualify for a title loan include:
- Not Having a Qualifying Vehicle Title In Their Name
- Applying With a Car That Has Negative Equity
- Failing To Provide a Reliable Form of Income
Thankfully, there are potential solutions to these examples. If the applicant’s title is not in their name, the borrower can request a title transfer at the Department of Motor Vehicles (or state equivalent) if they are the rightful owner of the vehicle. If the vehicle lacks equity, the borrower can use another vehicle with sufficient positive equity as collateral for the loan instead. The last scenario can be solved by the borrower finding a more suitable document that accurately demonstrates their ability to make payments on their loan.
If you meet the requirements for a title loan and provide the right documents, you can get your funds in as little as one business day! Start your loan request by submitting a short pre-approval form online. Feel free to visit our FAQ page today or speak with a title loan officer by dialing 855-422-7412 if you have specific questions about applying for a vehicle-secured loan.
Title Loans and Personal Loans: Making the Right Choice for Your Financial Needs
Learning about different types of loans is an important part of determining what resource you can use to handle a financial crisis. Deciding which loan is the better option will ultimately depend on your situation, financial goals, and personal preferences. If you want a longer repayment term and you have a stronger credit score, a personal loan may just be what you’re looking for. Alternatively, if you have bad credit and want to get a loan with competitive interest rates and flexible requirements, then a car title loan is an option to get your finances back on track!1
Compare the pros and cons of car title loans and personal loans before signing a loan contract. If an auto title loan sounds like a suitable choice, you can complete a brief online questionnaire or call a LoanMart title loan representative at 855-422-7412 to begin your title loan request.
