Leslie Kasperowicz holds a BA in Social Sciences from the University of Winnipeg. She spent several years as a Farmers Insurance CSR, gaining a solid understanding of insurance products including home, life, auto, and commercial and working directly with insurance customers to understand their needs. She has since used that knowledge in her more than ten years as a writer, largely in the insuranc...

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Melanie Musson is the fourth generation in her family to work in the insurance industry. She grew up with insurance talk as part of her everyday conversation and has studied to gain an in-depth knowledge of state-specific insurance laws and dynamics as well as a broad understanding of how insurance fits into every person’s life, from budgets to coverage levels. Through her years working in th...

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Reviewed by Melanie Musson
Published Insurance Expert Melanie Musson

UPDATED: Mar 29, 2022

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A title loan is a short-term loan that will use your car as collateral and, therefore, you will need full coverage insurance on the vehicle you are buying.

Short-term loans enable people to take out emergency money in a hurry to cover emergency expenses. These loans do not require the same extensive credit checks as a traditional loan, and they can usually be accepted and paid almost immediately. The trade-off for this type of loan is that it usually has a high-interest rate and may require collateral.

A short-term loan can be helpful when unexpected expenses pop up and you need quick cash. But its monthly payments will be higher than traditional bank loans.

What is a car title loan?

A car title loan is a loan that uses a vehicle’s title as collateral against the borrowed money. When you take out an auto title loan, you exchange your title for the loan money. If you fail to pay back the loan payments within the required payment term, the company can seize your vehicle.

Paying the loan on time is the best way to avoid adding a bad credit rating to your record.

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Do I need car insurance to get a title loan?

While your vehicle has a title loan against it, you cannot sell or trade that vehicle. You also must maintain full coverage auto insurance on the vehicle until the loan is paid off. This is because the loan company must protect its assets.

Until the loan is paid off, the vehicle technically belongs to the lender. Since a wrecked vehicle is of no value as collateral, the loan company will require insurance to cover any damage the vehicle may sustain until the loan is paid off.

This is also true for financing companies for new vehicles. If you make regular payments on your car, you must pay to have the vehicle insured with full coverage auto insurance. Additionally, if the vehicle is repossessed by a lender at any time, the lender can file a claim against your auto policy to repair any damage found on the vehicle.

What happens if I do not have car insurance?

If you don’t buy car insurance for the vehicle and it is repossessed with damage, you must pay for this damage out of pocket. This may amount to several thousand dollars paid toward the repair of a vehicle you no longer own. This is why maintaining auto insurance at all times is important, especially if you do not have the vehicle on a clear title.

When you take out the title loan, you will need to provide your proof of insurance along with the title. The proof of insurance should be up-to-date, showing a renewal date past the day that you are obtaining the loan. It should also ideally show what coverage you carry on your policy. You may need to bring a separate document, your policy’s declaration page, in order to show proof of full coverage to the loan company.

If you do not have proof of insurance, the loan company may be able to obtain this information by calling your insurance company. Not all loan companies will be as eager to do this, however, and you will likely receive better service if you have all of the necessary information available prior to taking out the loan.

Can I have more than one title loan?

You must also own the vehicle outright, free of any other liens. If you are already making payments on a vehicle, it does not actually belong to you; this means you cannot use it as collateral and you cannot take out further loans on it until the current loan is paid off. If you do not have a clean title, proof of ownership, proof of registration, and proof of insurance on the current vehicle, you will not be able to take out another title loan.

If you are unable to take out a car title loan but need money in a hurry, there may be other short-term loans that you can take advantage of. Some options include signature loans, which have no collateral but a high rate of interest, and payday loans, which provide a cash advance against your paycheck.

You can usually find these types of loans online, in the phone book, or by driving around searching for title loan companies. Many of these are also available through pawn shops.

Of course, the best choice is to avoid expensive types of credit if at all possible. Paying for items in cash is always the safest bet for your finances. If you absolutely must use credit, a credit card is a better choice than a short-term loan if the purchase is within your credit limit. The interest rate is lower and you do not have to worry about collateral.

Nevertheless, sometimes emergencies make obtaining fast cash a necessity, so it’s good to have title loans and other options available for these situations.