Sometimes, using your vehicle to get money quickly can be an option if you can't qualify for a person, but what if you want a car title loan and haven’t paid your car off? Can you get a title loan for vehicles on which you have an outstanding loan or other lienholders?
The answer is yes in many cases, but it ultimately depends on the lender’s requirements and the equity you have in your vehicle.
What to Consider Before Getting a Title Loan on a Financed Car
You have to follow a few steps to get a title loan for a car you still owe money on.
- Vehicle equity: To qualify for a title loan, you need to have equity in your vehicle, which is the difference between its market value and the amount you still owe. If the value of your car is higher than your remaining loan balance, you have equity, which can be used as collateral.
- Lender’s requirements: Lenders that offer title loans usually have their own criteria and requirements. Some will give you a loan even when you’re still paying a car off, while others won’t.
- Liens and loan payoff: A lienholder will be on the title as you’re still paying off a vehicle. This can be the bank or financing company that gave you the original car loan. Some lenders will require you to pay off your existing lien and have the lien released before they extend a loan to you.
- Legal considerations: There’s a lot of variation regarding regulations for title loans and registration loans in your state. Some areas have restrictions on the maximum loan amount, fees lenders can charge and interest rates, and there may be more restrictions on car loans that are still being paid off.
What Happens To Your Existing Loan?
If you already have a car title loan or auto loan, they will sometimes agree to pay that off and then add a lien on your title after signing a contract. You can still use your car while paying off a title loan but must make on-time payments.
For a title loan lender to give you money, you may need to sign an authorization form as part of your application. A lender uses this form to get information about your current car loan and pay it off. When you use a financed car as title loan collateral, the balance you owe on your original car loan is applied to the principal amount of your title loan.
If you can’t pay off your new title loan, the lender does have the right to repossess your vehicle.
Once you pay your loan in full, the lender releases the lien and you'll get the pink slip back.
Calculating the Equity of Your Vehicle
The equity of your vehicle is the difference between its market value and what you still owe.
Research the current market value with an online title loan calculator and other tolls to find out recent vehicle sales. To determine the approximate value, you can add details about your vehicle, like the make, model, condition and mileage.
Once you know this, review your loan statement or contact your lender to determine the remaining balance on your vehicle.
Once you have the market value and the outstanding loan balance, subtract that balance from your market value. The result is the equity in your vehicle.
If your vehicle's market value is $20,000 and you still owe $15,000, you have $5,000 in equity.
How Much Can You Get for a Title Loan on a Financed Car?
The factors influencing the total title loan amount include the car's value and your income.
- Your income affects how much you can receive because a lender wants to ensure your ability to repay the funding.
- Your state of residence is relevant because title loan limits are in place in some states.
- The loan-to-value ratio is part of this determination. The LTV ratio is a percentage of your car’s value that a lender is willing to lend. For example, if you go to a title loan lender that offers an LTV ratio of 50% and your vehicle is valued at $10,000, you might be eligible for a $5,000 title loan.
- The amount you still owe on your vehicle affects how much you’re eligible to get. The approval amount for a title loan on a car you’re still paying off is divided between the amount needed to pay off your current loan and the amount disbursed.
If you’d like to learn more about getting a registration loan or title loan for cars not paid off or to take the next step, Highway Title Loans can help. Call us at 844-433-5454!
Janet Patterson is VP of Marketing Communications for Highway Title Loans and the feature editor of its Lending Blog. Janet has worked in the financial service industry for over a decade, with 7 years of experience in the car title loan industry. She previously managed a customer service team that helped and advised consumers on all their lending related questions and concerns.