Gianetta Palmer is a writer for, copywriter, and essayist. Her work has appeared in, Healthline, and The Dyrt Magazine. She is the author of Scrunchie-Fried and writes a lot about car insurance in her spare time.

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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 car insurance laws and dynamics as well as a broad understanding of how insurance fits into every person’s life, from budgets to coverage levels. She also specializes in automa...

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Reviewed by Melanie Musson
Published Insurance Expert

UPDATED: Mar 13, 2020

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Short term loans enable people to take out money in a hurry to cover emergency expenses. These loans do not require the same extensive credit checking as traditional bank loans, 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.

What is a 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 this type of loan, you exchange your title for the loan money. If you fail to pay back the loan within the required payment term, the company can seize your vehicle.

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 your vehicle fails to sustain insurance and is repossessed with damage, you must pay for this damage out of pocket. This may amount to several thousands of 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 a proof of insurance card, 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 first loan is paid off. If you do not have a clean title and proof of insurance, you will not be able to take out a 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 housed in 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. 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.