The Differences between an Auto Loan and Auto Title Loan when looking to buy a Car


If you are looking to purchase a car with a loan, there are two ways that you can take on a loan on the car: traditional auto loan, or an auto title loan. Both are used for the purpose of purchasing a car, and both use the car as collateral on the loan. But there are key differences between the two that are important to be aware of.

Auto loans are issued by credit unions, banks, or the credit departments of major auto companies. These loans are based on your credit, and the process requires verification of your employment, income, and amount of savings. If you have bad credit or hard to prove income verification, getting approved is difficult. Also, it may take longer than a week to get approved if there are any discrepancies in your credit. The length of the loan can be from 12-36 months with fixed installments payments over the term of the loan. Interest rates for auto loans are normally 4-7 percent. If you have bad credit, they can be 15-20 percent, with a high possibility of not getting approved.

A car title loan works differently in that the auto title lender evaluates the price of the vehicle then gives you the loan based on the car’s worth. So there is no credit check and very minimal income verification. This is a benefit if you have bad credit or unable to prove your income. Another benefit is that auto loans get you the money extremely quickly, usually within a day or two.

When you get the funds, the lender owns the title of your loan until the loan is paid back. Compared to the length of regular auto loans, auto title loans are meant for a short period, usually a month to a few months. Interest rates can range between 15-30 percent for the term agreed, because of the risk your car’s value will go down during that time.

Auto title loans are usually intended for those that already own their vehicle and are looking to get quick cash to pay for their personal expenses. But if you need cash for a purchase and your credit and employment prevents you from the traditional auto loans, the auto title lender will be able to help with the purchase depending on your circumstance.

If you are questioning if auto title loans are right for you, there is also the option to purchase the car with a small personal loans. Personal loans can give you a longer term with lower interest depending on your credit. But if you have bad credit, it is wisest to speak to both auto title lenders and personal lenders and see which gives the best rate and terms for your new purchase.


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