Car title loans are easy to get approved, regardless of your credit score, and require as you to put up your vehicle as collateral. The equity in your owned vehicle is used by a car title lender to issue a cash loan in as little as 24-48 hours.
With Smarter Loans, you can discover Canada’s top car title loan providers and apply from the comfort of your home. Scroll through the options that we’ve listed out and once you’ve found a good match for your specific needs, you’ll be able to submit an application directly by clicking “apply now” next to their name. You can also apply directly with Smarter Loans and we will match you up with a car title loan provider in your area.
We can help connect you with the top car title loan providers in Canada.
Personal vehicles are some of the most common assets that everyday consumers possess. This is attributable to their utility as they facilitate transport from Point A to Point B quickly and efficiently. However, beyond this basic function, the tangible asset value of the car serves as a method for gaining short-term loan funding from a provider of such services. In other words, because cars are an asset that have their own value (just like a house), this value can be used as collateral to gain funding.
The car title loan is a short-term funding tool that can be used by borrowers with low credit scores or bad credit to borrow money by putting their car up as security (collateral) for the loan.
Personal loan lenders offer car title loans, also known as auto title loans, to those who need financial help. While the conventional route is to use a car as security, some auto title lenders do allow for other vehicular transportation such as motorcycles, recreational vehicles, or scooters to be used as well.
By definition, to get a car title loan, the borrower must own the title to the car. The way it works is that once the borrower has made the decision to obtain the auto title loan, he/she must transfer the hand over the title and a copy of the car keys to the lender for the length of the loan term. Because this is a secured loan (defined as one where the value is driven by an underlying asset, i.e., the car in this case), there needs to be unencumbered value in the car. In simple terms, this means that the owner must have equity in the car.
The equity condition can be satisfied in two ways: either by completely paying off any car loan or by having a loan amount that is less than the current value of the car. The interest rate for these car title loans tends to be higher than traditional loans due to the increased risk for the lender. Borrowers seeking auto title loan help should carefully consider their options and compare different lenders to find the best terms for their situation.
The equity condition can be satisfied in two ways:
1. By buying the car outright in cash, in which case the ownership of the car would immediately transfer to the buyer;
2. By paying off the auto loan in entirety, in which case the ownership of the car would transfer to the buyer after paying off all debts from the lending institution;
Once the borrower approaches the title loan lender and states his/her desire to obtain a car title loan, there is an application process where the company will request information to process the loan. Typically, this information includes:
The advance size itself is relatively smaller as it is an advance that is generally used by low credit score borrowers or those with bad credit, with the intention to fund emergency expenditures. Auto title loans are an option for those who can’t typically gain access to a traditional personal loan. Generally, the better the make and model and the lower the mileage, the greater the advance amount that can be obtained.
Similarly, the repayment term also varies across borrowers, wherein some borrowers might choose to pay back the car loan within weeks while others may choose to borrow for up to a year or possibly more. Monthly payment schedules can be tailored to the borrower’s needs.
For information about Title Loans, check out this guide from the Government of Canada.
Once the information is provided and the car is appraised for its value, the borrower typically gains access to the principal loan amount directly in his/her bank account or as a cheque that can be deposited into the bank within 1-2 business days.
The car title loan may be structured as a periodic repayment loan or as a lump-sum payment loan that is paid out at the end of the term. In some cases, if the borrower is unable to pay back the advance at the end of the term, they can potentially roll over the loan into a new term for an extra fee.
However, if at any point in time the borrower fails to make the scheduled repayment on the loan, then the lender holds the right to seize the vehicle as collateral to recoup the cost of the loan.
The main users of a car title loan will typically have the following features:
1. Low credit history, which would make other short-term loan options possibly unfeasible
2. Ownership of a functional car
3. Need for funding to cover short-term or emergency expenditures
4. Lack of other tangible assets that can be used as collateral
Despite the high interest rates, the car title loan offers certain advantages, particularly to borrowers with low credit checks scores compared to other lenders. Some of these advantages include:
Once all the documents, including registration papers and personal identification, get approved and signed off by the borrower and the lender, the funds are received within a couple of business days and can be deployed immediately. This is a distinct advantage for borrowers who are on a time crunch and would not be able to qualify for other loan options easily.
Although the title of the car is handed over to the lender, the borrower can continue to use the car during this period, as long as it remains fully insured. This enables them to continue on with their daily lives while the loan is repaid in due time. A consideration to make here is that the lender may ask the borrower to buy extra insurance if the current policy does not insulate them sufficiently.
As long as there is equity in the borrower’s car, the credit score is not a factor. The car is used as collateral, making this loan type “asset-based” i.e., backed by the tangible asset whose resale value can be ascertained on the open market, regardless of the amount originally paid. This is also referred to as secured loans.
The car title loan does not come with any needs for an initial down payment. Once the loan is approved, a lump sum is directly deposited into the borrower’s account. This is beneficial for those who may not meet the strict financial requirements of most lenders.
However, borrowers should be aware of potential administrative fees and carefully review the loan terms to ensure they fully understand their obligations as the legal owner of the vehicle.
It’s also important to note that some car title loan lenders may report payments to credit bureaus, positively or negatively affecting the borrower’s credit score.
Notwithstanding the above, car title loans, also known as auto title loans or vehicle title loans, do have to be evaluated carefully before being entered into for the following reasons:
The car title loan often comes with a higher rate of interest than other secured loans primarily because it is targeted to borrowers with lower credit scores. To compensate for this higher risk undertaken, the lenders charge higher interest rates.
Entering into a car title loan often comes with affiliated fees beyond the principal and loan payments that have to be paid. Some of these could include loan origination fees, administration fees to set up the loan, title search fees, lien registration fees, and vehicle evaluation fees. It is important for the borrower to understand the fee structures of different borrowers to ultimately reach the most optimal conclusion as per individual needs.
In the event of default on the car title loan, the lender can activate their right to sell the car gained from the transfer of the vehicle title. It is crucial for borrowers to be aware of the terms and conditions outlined in the loan documents, including the potential consequences of failing to make timely payments.
Repossession is not the end of the story in some provinces. If the car valuation or the value of your car is not sufficient to cover all outstanding loan proceeds, then the borrower still has to repay the remaining amount on top of surrendering the car.
Car insurance might be impacted depending on the specifics of the auto title loan agreement, so borrowers must carefully review the car title document and all other associated paperwork before committing to a loan.
The baseline requirements for an auto title loan are:
The way that the names are displayed on the car title will be the final consideration. If the individual names are written with “or”, then the auto title loan can be obtained by either member of the title. If they are written with “and”, then dual signatures of consent will need to be obtained.
Larger banks and traditional lenders do not offer a car title loan. However, several alternative lenders, such as credit unions and online providers who provide these services in each province.
Employment is the most commonly checked factor to ensure that the loan will be repaid in time. Alternatively, if the borrower is not employed, then he/she will need to show proof that they will be able to repay the loan on time. This proof can come in the form of entrepreneurship ventures, bank savings, etc. A credit check might be performed by some lenders to assess the borrower’s ability to repay the monthly payments.
Once the loan is paid back, the title is handed back to the borrower, and the security interest is removed.
If you don’t own the vehicle outright and it is not completely paid off, you may still be eligible for an auto title loan. The maximum loan amount will depend on the circumstances: car value, the amount to be paid off, the amount already paid off, and other financial factors. You may have to pay a higher interest rate on a loan of this type, though, and not every auto title lender will approve this kind of loan, so it’s worth shopping around to find a company you can work with.
Title loan interest rates vary from lender to lender, as well as with the circumstances of the borrower. Your credit score, income, appraisal value of your car, the proportion of equity in the car, and other financial factors may influence your interest rate. Typically, secured loans like auto title loans have lower interest rates than unsecured personal loans for those with poor credit. Online lenders may have better rates than brick-and-mortar lenders. The range for interest rates for title loans is large, though; it could be anything from 20% to 60%. Your rate cannot exceed 60%, as this is a legal cap enforced by the government.
Borrowing with your car is one way to access quick cash, without needing to meet the rigorous financial requirements of an unsecured loan. The amount you are able to get through a title loan is typically small, ranging from $100 to $15,000. The exact amount varies and depends on your financial circumstances – your income level, the car value, and the amount of equity in the car. More valuable and newer cars, as well as those with more equity in them, will grant you access to a larger loan. It’s important to consider the cost of the loan before committing to ensure you can make the monthly payments and recoup payments in a timely manner.
Amy Orr is a professional writer and editor with over 10 years of experience in the Canadian, U.S. and U.K. financial markets. She has written for numerous publications on topics as diverse as economic literacy, corporate finance, and technical analysis of numerical data. Prior to transitioning to full-time writing, she worked in the hedge fund sector. Her academic background is astrophysics, and she has a Masters in Finance from the University of Edinburgh Business School.
Jenna West is Smarter Loans' in-house financial writer and content director. She has been covering the Canadian FinTech and finance industry since 2017, including financial trends analysis, industry surveys, regulatory updates and changes in Canadian consumer behaviour when it comes to finance.
