Second lien title loans are a lot like car title loans except they don’t require your car to be paid off to secure your loan. This means that your vehicle can be used as collateral against a new loan even if you still owe money on it.
The main difference is that the lender giving you the new loan will have to take on more risk if you end up defaulting because the lender that initially financed your car has first dibs on being repaid.
Learn more about how second lien title loans work and find out how you might be able to benefit from one today.
Can I get a 2nd title loan?
Yes! Second lien title loans allow you to use your vehicle as collateral to secure personal financing. What sets these loans apart from car title loans is that your vehicle doesn’t have to be paid off before you can secure a second loan. You can think of it as getting a car title loan on a financed car.
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How does getting a car title loan on a financed car work?
There are 2 main types of second lien title loans that you’ll be able to qualify for. The first entails your second lien title lender paying off your old loan and adding the balance to the amount you want to borrow.
The second involves your new lender assuming ownership of your old loan and promising to pay off your old lender if you default on your payments.
Once you’ve found a lender that’s willing to offer a second lien loan, you’ll usually need to take your vehicle for an inspection. This lets them know that it’s in good working order and is worth its market value.
From there, you may be able to borrow between 25% and 50% of what the vehicle’s worth. You’ll then need to make payments to your second lien loan lender – and in some cases, continue to make car payments to your original lender.
Can I get a second lien title loan with my original lender?
You can definitely ask your original lender if you can get a second lien title loan. But that doesn’t mean your old lender will agree. You’re also free to look around for a second lien loan from another provider if you don’t want to work with your original lender or you think you can get better rates somewhere else.
Benefits of second lien title loans
Fast cash. You’ll usually be able to get your cash quickly since it will be secured by your vehicle and will usually be for a relatively small amount.
No credit check required. You won’t be required to submit to a credit check to qualify. You’ll simply need to put the title of your vehicle up as collateral.
Decent rates. You may be able to secure better rates with this type of loan than you would with an unsecured loan (that is, one that isn’t secured by collateral).
Easy to qualify. You’ll usually be able to qualify fairly easily as long as you have a vehicle that has enough equity in it to secure your loan.
Doesn’t affect your ability to drive. You’ll still own and be able to drive your vehicle as you would normally as long as you continue to make your payments on time.
What to watch out for with car loan debt
Expensive fees. You may need to pay exorbitant fees to get your second lien title loan contract in place.
Potential to lose your vehicle. You’ll have to forfeit your vehicle if you default on your payments and continue to pay off your original loan in some cases.
You could get scammed. There are predatory lenders that promise fast cash but may take advantage of your personal information or vehicle title.
High rates with some providers. You may end up paying very high interest rates for a second lien title loan when compared to a traditional loan.
Can be difficult to find a second lien lender. Many lenders won’t want to take on a second lien loan, which can make it difficult to find this type of financing.
Second lien title loans scams
You should be sure to keep an eye out for predatory lenders when you’re signing up for a second lien title loan. Try to stay clear of the following red flags:
The lender doesn’t advertise its rates. You should be suspicious of any lender that attempts to hide your interest rates in the fine print of your contract. This could mean that it’s trying to overcharge you or offer you a loan that you simply can’t afford.
Loan insurance is required. You’ll want to avoid any lender that insists you need loan insurance in order to qualify for a loan. This type of lender will typically ask for an insurance fee – which you should never pay since it’s likely a scam.
You’re guaranteed approval. You shouldn’t be guaranteed a loan until your lender examines your own unique personal and financial circumstances, let alone your vehicle title. Look elsewhere if your lender promises you a loan without requesting any follow-up information.
Things to consider before you sign on to a second lien loan
A second lien title loan may be a decent option if you want a short-term loan that can be secured by your vehicle. You’ll just want to ensure that you can afford to add another loan on top of your outstanding car payments. This will require you to make a detailed budget to see if your income will allow you to cover the extra payments.
If you don’t think you can afford to take on more payments, you should avoid taking out a second lien title loan. This is because you risk losing your vehicle or going further into debt if you default on your payments. Any missed payments could also have a negative impact on your credit score in the long run.
Before you sign on to your loan, you should make sure to go through your loan contract with a fine-toothed comb. Make sure you understand the terms and conditions and ask for clarification where necessary.
Avoid signing on to the loan unless you’re 100% certain that you understand what you’re getting into and that you can handle the extra financial burden for the amount of time specified in your loan agreement.
Second lien title loan alternatives
Second lien title loans aren’t always the best idea – especially if you aren’t certain you can make your repayments on time. You may want to consider these alternatives if you need some quick cash:
Payday loan
If you’re looking for between $100 and $1,500 in fast cash, you might be best placed to take out a payday loan. This type of loan comes with very high interest rates. but it could be a good alternative if you know you can afford the extra costs.
Short-term personal loan
You may be able to borrow money in the short term from your bank or a private lender. These loans usually come with lower interest rates than payday loans but may require you to have decent credit to qualify.
Debt consolidation loan
If you’re looking to fix a more serious issue that you have with unmanageable debt, you may want to consider taking out a debt consolidation loan. This could allow you to pay off all your debts with a lower rate loan, and then you’d only have to make a single payment each month.
How to apply for second lien title loans
Eligibility criteria:
Be a Canadian citizen or permanent resident
Be at least 18 years old or the age of majority in your province or territory
Have proof of steady income and stable employment
Have a clear vehicle title that’s listed in your name
Have car insurance on the car you want to use as collateral
Allow for a car inspection to verify the condition of your vehicle
Steps to apply:
Apply with a lender offering second lien title loans either online or in person
Provide personal information such as your name, date of birth, address and email address (and prove your identity with some form of government-issued ID)
Give details about your employment status and income
Send in the title to your vehicle and submit it to an inspection
Example: Gavin needs money for tuition
Gavin runs into an unexpected car repair and uses part of his student loan to cover the cost. When it comes time to pay for tuition, he ends up around $1,200 short for the semester. Since he doesn't want to take out a line of credit or a payday loan, Gavin needs another financing option to make ends meet.
To help solve his dilemma, Gavin's friend mentions that he might be able to take out a second lien title loan on his vehicle – even though it's not quite paid off yet. After a bit of research, Gavin finds a suitable second lien lender willing to finance his loan. This is likely because Gavin only owes around $3,000 on a car with a market value of $15,000 (which is fairly low-risk).
The new lender offers Gavin a $5,000 loan, part of which will be used to pay off his balance with his old lender. This leaves him with $2,000 in pocket money and an extended term for his car loan with slightly higher interest rates and payments. He agrees to the conditions of his new contract, schedules a quick car inspection and drives away with cash in hand on the same day.
* This is a fictional, but realistic, example.
Bottom line
Taking on a second lien loan can be a convenient option if you need access to fast cash. Just be aware that you’ll typically pay higher interest rates and you could lose your vehicle if you can’t make your payments on time.
Frequently asked questions about second lien title loans
A car title loan is only available for borrowers who have paid off their vehicle in full and want to use it to secure their loan. Second lien title loans, on the other hand, are loans secured by the title of your vehicle even if you haven't made all of your payments yet.
If you fail to make your vehicle payments, you could end up having your vehicle repossessed. In this case, your vehicle will typically be sold at an auction to recoup your outstanding balance. You may even still owe money on it after it's sold if your lender can't get the full list price for it. That's why it's important to make sure that you make your payments on time.
A lien is a fancy word for the paperwork that stipulates which person or entity has the right to retain an asset – such as a vehicle – that belongs to someone else until their debt is repaid in full. In the case of your car loan, your lender will have a lien on the vehicle until you pay it off. A second lien lender will also have a lien on your vehicle to secure your payments on your second loan.
This means your car has no outstanding loans or judgments against it and that you own your car outright. You're not making any payments to a dealership, financial institution or any other type of lender.
Yes, you will need to be the legal owner of the vehicle to get a second lien title loan.
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To make sure you get accurate and helpful information, this guide has been edited by David Gregory as part of our fact-checking process.
Claire Horwood was a writer at Finder, specializing in credit cards, loans and other financial products. She has a Bachelor of Arts in Gender Studies from the University of Victoria, and an Associate’s Degree in Science from Camosun College. Much of Claire’s coursework has focused on writing and statistics, with a healthy dose of social and cultural analysis mixed in for good measure. In her spare time, Claire enjoys rock climbing, travelling and drinking inordinate amounts of coffee. See full bio
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