Car Title Loans: Why it’s Foolish to Sacrifice Your Car

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Car title loans seem like a great way to get quick money. They’re not. Here are alternatives to auto title loans that will help much more.

Before I began to pay off my debt, I did many things to get by. I would pawn items. I would sell plasma. I would drastically cut my grocery spending to subsistence level. I was like a junky, looking for a quick hit until the next payday. Many in that same situation turn to payday loans. We all know how bad those can be though there is something far worse – car title loans.

I know it seems impossible for something to be worse than a payday loan. Don’t get me wrong; they’re horrid at best. However, auto title loans can have more of a negative impact on your overall livelihood.

What is a Car Title Loan?


A car title loan works very simply. You have limited funds and you need access to cash. You don’t want to wait around to get the cash. You need money today and have few options.

You have very few things to pawn, or are at least unwilling to part with and begin to look for items of value you can use as collateral. You don’t need the money for anything long-term – you just need it to get by.

Akin to my personal junky analogy above, auto title loans allow people to get access to quick cash in very little time – usually in under an hour. We’re not talking massive sums of money, as Pew Charitable Trust reports, the average car title loan is $1,000, but what’s missed is one very important issue – you sacrifice your car to get the money.

Even though I work from home, I can still imagine what it would be like to sacrifice my car for quick money and I can tell you this – it would be bad.

Why Are Car Title Loans so Bad?


Car title loans are dangerous for one simple fact – you risk having your car repossessed if you miss a payment. Truth be told, I’m not certain why an auto title lender would want to repossess a car as they’d be giving up sizable payments but it does happen. Pew reports that upwards of 11 percent of borrowers have their cars repossessed each year.

Think about that for a moment. In a time of desperation, you take out a car title loan and miss several payments. The lender repossesses your car leaving you with no means of transportation.

That impacts your livelihood folks. Unless you have access quality public transportation or can buy a new car, which is probably unlikely, you have no way to get to work.

Take the example of William Sherod. NBC reports that Mr. Sherod took out a $1,000 car title loan in 2014. He was short on a payment by $26. The lender repossessed his car over $26. He had to borrow over $800 from a family member just to get his car back.

The lifestyle impact aside, here’s why car title loans are so bad from a numbers perspective:

  • You can get up to $10,000 in some states (they’re currently legal in 25 states)
  • Often the only requirement is proof you own the car
  • Rates, on average, can be upwards of 300 percent annually
  • Average payments make up 50 percent of a borrower’s monthly income
  • Half of those who borrow do so to pay regular monthly bills

Pew reports other scary statistics but these provide a good overview. The rate alone should be enough to scare people away. The crazy, although I guess not too crazy truth is that when I was searching for car title lenders, I discovered that very few sites publish their rates. They operate in the shadows to lure unsuspecting individuals with the promise of quick cash with very little strings attached – though that is indeed not the case.

Just to give a brief comparison of payday loans vs. car title loans, far more people take out payday loans. Again, Pew Charitable Trust reports that more than 12 million people took out payday loans in 2012. These loans were a total of more than $7 billion in fees. Citing the same Pew report on auto title loans, close to 2.5 million people took out car title loans per year totaling over $3 billion in fees. While half the amount of payday loans, the risk of losing your only car makes them far worse in my opinion.

Alternatives to an Auto Title Loan


The only real alternative to car title loans is reform. Pew reports they’re legal in 25 states and a few, like New York, have imposed significant caps though nothing standardized has come down the pike. My hope is that will change in time.

*Related: Have a check you need to cash? Here’s our guide on the best places to cash a paper check near me to get money now.*

Aside from reform the alternative largely boils down to a behavioral issue in my opinion (assuming there isn’t a true, genuine need for money.) Beyond that the issue comes down to managing your finances from month to month. That’s evident in the fact that half of people who take out auto title loans do so to pay regular monthly bills.

There are many ways to change that. You can find bills to cut or ways to make extra money so you have more money to work with each month. If consumer debt is the problem you can change that as well. There are many ways to pay off debt if you simply start.

If taking charge in paying off debt seems overwhelming you should at least look at consolidating or refinancing your debt to lower your payments. You can do that with someone like Lending Club or LightStream and cut your rates to lower your payments and make more of your payment actually do something.

Ultimately, nearly anything is going to be better than taking out a car title loan. You may feel like you have no option, but I don’t believe that to be the case. There are many options out there, if you’re willing to change the underlying behavior, and look for them. Just think of it this way – risking your car and potentially losing out on that bet will put you in a far worse situation.


Why do you think many don’t think of the repercussions of taking out a car title loan? What other options would you recommend? Could you get to work without a car?

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John is the founder of Frugal Rules, a dad, husband and veteran of the financial services industry whose writing has been featured in Forbes, CNBC, Yahoo Finance and more.

Passionate about helping people learn from his mistakes, John shares financial tools and tips to help you enjoy the freedom that comes from living frugally. One of his favorite tools is Personal Capital , which he used to plan for retirement and keep track of his finances in less than 15 minutes each month.

Another one of John's passions is helping people save $80 per month by axing their expensive cable subscriptions and replacing them with more affordable ones, like Hulu with Live TV.


  • Holly Johnson says:

    Car title loans are for people with almost no options and terrible credit. If you really need the money, you’re better doing almost anything else!

    • John Schmoll says:

      Completely agreed Holly. Nearly anything is better and nothing is worth risking your mode of transportation.

  • Eric Bowlin says:

    Payday loans, title loans, easy credit, low/no money down financing options, buy now pay later schemes….they all are there because there is demand for them.

    The real problem is that people lack financial sense. Of course predators always take advantage of the weak, and it’s wrong. But, if these were illegal, some other way would just pop up to take advantage of people.

    I think schools should start teaching budgeting, home economics, and personal finance. It might limit the severe lack of financial education.

    • John Schmoll says:

      Completely agreed on the teaching of basic personal finance in schools. We have a responsibility to provide that to help spur growth to financial literacy.

      While I agree that many of these things are there because of the demand, I also believe much of it is there because companies prey on individuals who lack in some form or another. Crazily, many of these outfits are owned by big banks which many don’t realize. I think it’s not only a changing of the attitude/education that’s needed, it’s also requires a change of the laws to protect those these institutions prey on.

  • Emily @ JohnJaneDoe says:

    Car title loans and pay day loans are just one of those ways that we make things a lot more expensive for the people who have the least. Low loan to value rates, high interest rates and inflexible payments do make them very high cost and high risk. Unfortunately, a lot of the people who take advantage of them don’t have credit or even access to regular bank accounts, and don’t see many alternatives other than doing without. That can be really tough when budgets are stripped down to the bare essentials.

    • John Schmoll says:

      That’s a good point Emily. I’d imagine many who take this option don’t have access to things others might.

  • Amanda @ centsiblyrich says:

    Thanks for sharing, John. Car title loans seem a last resort for those who can’t see (or don’t have) any other options. It sounds like regulations on these loans are lax and those that use them are at the mercy of loan agreements that aren’t clear, or they don’t fully understand. Education, changes in behavior, and policies regulating the loans would all be steps in the right direction.

    • John Schmoll says:

      You’re exactly right Amanda, there’s a lot that needs to go into changing the direction in something like this.

  • Abigail @ipickuppennies says:

    “While half the amount of payday loans, the risk of losing your only car makes them far worse in my opinion.”

    Actually, the numbers you provided show that auto loans are far MORE than payday loans. You said 12 million payday loans generated 7 billion in fees. But 2.5 million (less than 1/5 the number) of auto title loans generated 3 billion (almost 1/2 the number) in fees.

    Just more proof that auto title loans are… awful. Like you said, it’s a terrible idea to leverage something you need to get to work. Scary stuff.

    • John Schmoll says:

      Good point! Agreed, it’s terrible and something that shouldn’t even be an option. Sadly, far too many take advantage of the lack of transparency.

  • DC @ Young Adult Money says:

    Desperation is what this comes down to. When you are desperate for funds you will do what you need to do to get money, and I’m sure there is a decent amount of marketing sunk into this area (and targeted marketing at that).

    It sounds crazy but if I took public transportation it would take between 2-3 hours each way…so it’s really not an option imo.

    • John Schmoll says:

      You’re very likely right DC, I’d imagine a fair bit of marketing is put towards this. To think of it, I usually only see car title loan places in lower socioeconomic areas.

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