How do car title loans work and should you get one?

A car title loan is a convenient way to get a fast loan if you have bad credit. But car title loans are expensive to repay, and your car could be repossessed if you default on the loan. So, know the risks of borrowing before you apply.

In this guide, we explain how car title loans work, including pros & cons and how much a car title loan costs to repay.

What are car title loans?

A car title loan is a loan secured by your vehicle. It allows you to use car ownership to access cash, even if you have bad credit. Because you provide your vehicle as collateral, you can qualify for a larger loan amount than you would otherwise get with an unsecured personal loan. Providing collateral also increases your chances of approval.

Must read: List of car title loan providers in Canada

How do car title loans work?

When you take out a car title loan, you provide your vehicle as collateral. The lender will register a lien on your car, but you get to keep driving your vehicle while repaying what you borrow. In some cases, the lender may require you to install a GPS tracking device or immobilizer on your car.

You’ll typically have between 3 – 60 months to pay back your loan. But if you fall behind on your payments, the lender can repossess your car.

Car title loans are available from alternative lenders and often come with high APRs.

Are car title loans safe?

Yes—but car title loans come with risks.

First, you need to make sure you’re dealing with a legitimate lender. The title loan lending space attracts a fair share of scammers, so do your research to check whether a lender is above board.

Check reviews on sites like the Better Business Bureau and Trustpilot to find out what other customers have to say. Note that, depending on where you live, a title loan lender may need to be registered or licensed to operate in your province. Check with your local Consumer Affairs office to find out if it is.

Second, car title loans are typically very expensive. Interest rates are high, and loans come with extra fees attached, so it’s worth considering car title loan alternatives first.

How much can I get with a title loan?

The maximum amount you can borrow depends on the market value of your car. As a general rule, lenders will let you borrow up to 50% of your vehicle’s value.

Each lender also sets its own maximum loan amount. This may be $10,000 with some lenders, $25,000 or $50,000 with others and up to $100,000 in some cases.

How much do car title loans cost?

Car title loans are generally very expensive, with rates as high as 49% APR. Lenders may charge a range of fees, including:

• Vehicle evaluation fee. This fee covers the cost of having your vehicle inspected and appraised.
• Search fee. This fee covers the cost of checking whether your vehicle has ever been in an accident and whether there are any liens on your car.
• Administration or registration fee. The lender may charge a fee to set up your loan or put a lien on your vehicle.
• Installation fee. This fee covers the cost of installing an immobilizer or GPS tracker on your car.
• Roll-over fee. Some lenders charge this extra fee if you need to extend your loan term.

Finally, the length of your loan term also affects the cost of paying off your loan. While a longer loan term means a smaller monthly payment, it also means you’ll pay more interest over the life of the loan.

Representative example: Monique gets a car title loan

Monique needs funds to help cover the cost of kitchen repairs. Although her credit history is less than perfect, she owns her car outright. Monique decides she will take out a car title loan to get funds, and she compares loans from three lenders to find the best deal. The results of her comparison are shown in the table below.

	Lender A	Lender B	Lender C
Loan amount	$10,000	$10,000	$10,000
APR	19.99%	24.99%	37.99%
Loan term	4 years	2 years	3 years
Monthly payment	$304.25	$533.67	$469.44
Total cost	$14,604.02	$12,807.96	$16,899.91

Monique decides to get a $10,000 loan from Lender B. Despite the fact that it has the highest monthly payment, it is significantly cheaper to pay off in full.

Title loan rules and regulations by province

In recent years, some provincial governments have introduced tighter regulations governing providers of high-cost credit such as car title loan lenders. For example, Alberta’s Consumer Protection Act establishes guidelines about what lenders can and can’t do when chasing down your debt. It also requires lenders to provide you with key loan information in a standard format and to avoid misleading borrowers in advertisements or loan negotiations.

A common requirement under high-cost credit regulations is that lenders must be licensed. Let’s take a look at the rules that apply in provinces where these regulations are in place.

• Alberta: Under the Consumer Protection Act, businesses that offer high-cost credit (annual interest rate of 32% or more) must be licensed.
• British Columbia: Lenders that offer high-cost credit products (annual percentage rate (APR) or annual interest rate (AIR) over 32%) must be licensed as a high-cost credit grantor. Learn more about title loans in BC.
• Manitoba: Lenders that offer high-cost credit (with an annual interest rate exceeding 32%) must have a high-cost credit grantor licence from the Consumer Protection Office.
• Newfoundland and Labrador: From June 1, 2024, lenders that offer high-cost credit (APR that exceeds the Bank of Canada’s Bank Rate plus 22%) must be licensed to operate in Newfoundland and Labrador.
• New Brunswick: In November 2023, a Consumer Protection Act was proposed that would require high-cost credit providers to be licensed.
• Quebec: Merchants that enter into a high-cost credit contract (Bank of Canada’s Bank Rate plus 22%) must hold a permit from the Office de la protection du consommateur.

Pros and cons of car title loans

What do you need to get a car title loan?

Car title loan eligibility requirements vary between lenders, but you’ll generally need to meet the following criteria.

Vehicle requirements

• You must not owe any money on your vehicle—you must own it outright
• Your vehicle must be registered and insured in your name
• Your vehicle must be a recent model—lenders will usually only accept vehicles that are no more than 8-10 years old
• Your vehicle must not have exceeded the lender’s mileage limit, such as 150,000km

Individual requirements

• You must be a Canadian citizen or permanent resident
• You must be the age of majority in your province or territory
• You cannot be bankrupt
• You must receive a steady income
• You must have a valid Canadian driver’s licence

Documents required

• Your driver’s licence
• The vehicle title
• Proof of ownership such as your car registration
• Proof of insurance
• Proof of address like a utility bill or bank statement
• Proof of income like a recent pay stub or bank statement

How to apply for a car title loan

Some lenders allow you to take out a car title loan completely online. You’ll need to upload photos of your vehicle as well as supporting documents. But most lenders will require you to visit in person to have your car appraised.

Even if you must visit a lender in person, providers will let you start the application process online. You’ll need to provide:

• Your vehicle’s make, model, year and mileage
• Your personal and contact details
• Information about your employment and income

The lender will also let you know what you need to bring to your vehicle inspection appointment, including the relevant paperwork and a spare car key.

How long does it take to get a car title loan?

Car title loans offer fast access to funds, and you can get a loan in the space of a few hours with some lenders.

In other cases, it might take a few days to get approved and funded. Allow time to for the lender to inspect your car, check its history and approve your paperwork.

Related: Fast, easy loans in Canada

What happens when you default on a title loan?

If you fall behind on loan payments, the lender may charge additional fees. Your bank might also hit you with an NSF fee if a loan payment doesn’t go through due to insufficient funds.

The lender may activate the GPS tracker or ignition immobilizer in your vehicle. Your lender also has the right to seize your vehicle and sell it to recoup any losses.

Finally, defaulting on a car title loan means your credit score will take a negative hit. If you’re struggling to make on-time payments, contact your lender to see if a new payment plan can be negotiated.

Alternatives to car title loans

Not sure if a car title loan is right for you? Consider these alternatives.

• Credit card. One option is to get a credit card cash advance, which offers a quick and convenient way to access funds. You may be able to get a better interest rate than you would with a car title loan. But take note that you’ll also pay a cash advance fee.
• Unsecured personal loan. Some online lenders specialize in unsecured personal loans for bad credit. Though they often come with high interest rates, these lenders focus on your income rather than your credit score when assessing your application.
• Credit union loan. Some credit unions offer payday loan alternatives with small loans for people with bad credit. These loans have lenient eligibility criteria and are much more affordable than a payday loan. Examples include the Servus Credit Union Fast Forward Small Loan and the Vancity Fair and Fast Loan.

Bottom line

A car title loan may seem like an easy and convenient way to get a loan fast, but it does come with downsides. Title loans are expensive, and you risk losing your car. So, it’s worth considering a range of alternatives first. If you still think a title loan is right for you, compare car title loan lenders to find the best rate and loan terms.

Frequently asked questions

• What banks do car title loans?

  Banks do not offer car title loans. These types of loans are available from private and alternative lenders.

• What happens if my car is totalled and I have a car title loan?

  Title loan lenders typically require that you have collision and comprehensive insurance on your vehicle before approving you for a loan. So, if your car is totaled, you can use the insurance payout to pay off your loan.

• What documents do I need to get a car title loan?

  The exact paperwork required depends on the lender, but you'll generally need to provide:

  • Your driver's licence
  • Proof of ownership
  • Proof of car insurance
  • Proof of income such as a pay stub or bank statement

  Check the lender's website for a full list of required documents.

• Can I get a car title loan with a financed car?

  Typically, no. You must own your car outright to qualify for a loan from most lenders, so you can't get a car title loan if your vehicle is financed or leased.

• Where is the best place to get a title loan?

  The best place to get a title loan is from a legitimate lender, so check lender reviews and ratings on sites like the Better Business Bureau and Trustpilot. High-cost lenders are required to be licensed in some provinces. If this is a requirement where you live, check with your Consumer Affairs Office to find out if a lender meets licensing requirements.

  The best place for you to get a title loan also depends on your income and the type of vehicle you drive. Each lender has different requirements, so shop around to find out where you can get the best rate.

• Where can I get a car title loan with bad credit?

  Car title loans are available from alternative lenders across Canada. Most of these lenders do not conduct credit checks, so bad credit won't stop you getting a loan.

• Can I get a car title loan online?

  Yes. Some lenders allow you to apply, get approved and receive funds for a title loan online. You'll need to upload pictures of your vehicle to verify its condition, along with photos of its odometer and VIN. You'll also need to upload supporting documents like proof of ID and proof of ownership, then get your loan funds via direct deposit or e-Transfer.

• What do I do after finishing payments on my title loan?

  Once you've paid off a title loan, you'll need to make sure the lien on your vehicle is removed. The lender will provide you with written confirmation that the lien has been discharged. Then you can conduct an online lien search in your province or territory or buy a vehicle history report to check whether you have a clear title to your vehicle.