How We Got Out of a Financial Bind Using Our Car as Collateral

by Travis Pizel · 20 comments

“How are we going to pay for that?” my wife asked me.

I wasn’t sure how to answer the question. We were staring at an unexpected expense that was more than our budget had room to handle — and our emergency fund had recently been exhausted.

We were almost done paying off $109,000 in credit card debt through a debt relief program; the terms of which resulted in our unsecured lines of credit being closed, and us being unable to apply for any new ones until we completed the program. We had to find a solution, and fast.

We applied for a title loan.

When many people hear the term “title loan,” they think of something much like a payday loan. You bring in the title to your car and you walk out with cash, as well as a sky-high interest rate.

By doing some research, we found a different kind of title loan.

Our Vehicle Title Loan

It was essentially taking out an equity loan on the car we already owned. With title in hand, we walked out with an approved loan in under 90 minutes.

Here are some details of the loan:

  • Three-year term
  • No penalty to pay off early
  • 7.9% interest
  • Could have borrowed up to the Kelly Blue Book Value of the vehicle
  • Needed to own the vehicle outright (no lien holders on the title)
  • Secured loan, so it didn’t violate the terms of our debt relief program

We found out these kind of vehicle title loans were offered by two surprising entities: not the pawn shop or the payday loan company, but our bank and our insurance company.

We hated to take on more debt at a time when we were still trying to eliminate our credit card debt, but this was an extreme situation we had to deal with. We were in a bind, and it was a relief to find a legitimate financial product that helped us through a temporary rough spot. Luckily for us, we were able to greatly accelerate our payments and pay it off quickly once we completed our debt relief program.

If you find yourself in a similar financial crisis (and own your vehicle outright), your four-wheeled friend — in combination with your bank or insurance company — just might provide the help you need.

Have you ever heard of a bank or insurance company offering vehicle title loans? Have you had a similar experience?

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  • Amy Shaul says:

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  • Claire Masters says:

    It was really interesting to know that a vehicle title loan can have a term that lasts up to three years. I’m currently in a dire financial situation because of the student loans that I need to have money on hand as soon as possible. I’ve been thinking of pawning off my car to get myself out of this rut so I’ll be researching more about this.

  • Zeus says:

    Nice post. Thanks for sharing.

  • Dwayne says:

    I wish more banks would offer car title loans as a product because it would certainly make the market more competitive. Without legitimate banks offering title loans at low rates, title lenders will never be “incentivized” to compete on interest rates. That’s one reason why the APRs on title loans continue to hover in the triple digits. As soon as BofA, Chase, and Wells Fargo enter the market, you will see a massive restructuring of the industry. It will be less about loan-processing speed and more about customer service and low rates. Don’t be surprised to see the heavyweights of the title lending industry all of a sudden grow a heart for subprime borrowers. Anyhow, as convenient as title loans are, we must not forget its main disadvantage: repossession. Title loans are not the answer for every emergency. You can easily lose your vehicle, which can drive you into more debt. If you do your homework and borrow responsibly, title loans can be very helpful in times of financial distress.

  • Milo Durocher says:

    Matt — One thing I mentioned in the post that might be helpful for you is private student loan consolidation. Just like consolidating your federal loans , this would be one new loan, with new terms, that’s used to pay off the private student loan(s) you want to include. Because these student loans are based on credit you might be able to qualify for a better interest rate if your situation has changed or if you bring on a cosigner with excellent credit. Consolidation may also extend your repayment term, so you could see a lower monthly payment. However, remember that because you’re taking longer to repay the loan. It could mean more interest over time if you continue to make just the required payments.

  • Joyce says:

    I DID THIS – or rather my credit union suggested it – & saved my family so much stress & money. Because of my husb’s illness/meds our mastercard was almost maxed out at ~$28k & they were raising our interest to 22% even though we’d never missed a payment. Vantage Credit Union was the only financial place that would even talk to me about options. I expected I’d take this debt to the grave & beyond. But Vantage set me up with two 4-yr vehicle loans which will be paid off in about 16 months. (We were lucky enough to have a couple cars with really great resale value.) The $28k credit card debt will be eliminated!

    • Travis @debtchronicles says:

      Good for you for using your available options to reduce your financial stress, Joyce! Now, plow your way through the next 16 months and pay it all off for good! Thanks for sharing your story!

  • debs says:

    Great info. Are most car loans from the dealer a type of Title loan?

    • David @ says:

      Actually there are many different types, and I’m sure everyone you talk to will use the terms as if they are all the same. It’s best to look at all the terms carefully before signing, even if you are in a hurry and need cash fast.

      Although Travis did good here, I looked and title loans can have really high interest rates and/or tons of additional fees. So be careful!

    • Travis @debtchronicles says:

      You could look at it that way…you’re essentially putting up the car as collateral for a loan – just like when you bought it. When you do it this way, however, the interest rate IS a bit higher. Loans on new cars are in the 2-3% range right now, but title loans for cars you already own are in the 7-8%. Higher, but still way better than a payday loan sort of title loan. Thanks for reading, Debs!

    • debs says:

      Thank you both for clarifying. Good to know as my sis just bought a used car, but if I asked her she probably won’t know what type of loan it is.

  • David @ says:

    Good to know Travis. I didn’t know you can offer up a car as a collateral like that. You never know when something like this can be useful.

    And speaking of collateral, I wonder if there are any other types of assets, say art or even furniture/computers, that can be used to get a loan too.

    • Travis @debtchronicles says:

      I’m not sure if you can offer up anything else…the thing about an automobile is that it has a title, and they can put a lien on the asset. That could be one reason why they offer the service – certainly something interesting to explore though!

      • David @ says:

        Maybe being able to put a lien on the asset is key. And plus, there’s probably too much risk in allowing shady borrowers to swap out the asset with fake versions if they can’t pay back the loan before it’s repossessed.

  • Aldo@Million Dollar Ninja says:

    I just watched a documentary called “Spent: Looking for Change” on youtube that talks about the hardships people go through and why payday loans are a bad deal.

    This sounds like a better deal, but I’d still be a little hesitant about it. I’m also glad it worked out fine for you.

    • David @ says:

      You shouldn’t have to worry because the interest rates are spelled out to you clearly, as Travis allured to. And since this is a secured loan, the rate is actually not too bad.

      Payday loans are evil because the interest rates are buried in the fine print, which no one ever checks.

    • Travis @debtchronicles says:

      The thing about these kinds of loans is that it’s exactly like getting a loan for a car….an it’s through your bank or insurance company – which usually indicates it’s legit. Not that banks and insurance companies won’t rip you off, but I’d trust them a lot more than the payday lender on the corner that will give you money without a credit check. Customers always want to read through their documents carefully and ask question before signing though….you definitely want to know EXACTLY what you’re getting into before you sign. Thanks for reading, Aldo!

  • John @ Wise Dollar says:

    That’s interesting. I would’ve never thought that a bank or insurance company offered title loans. I guess, on one hand, it makes sense as they’re looking to make money too. 😉 With the ability to pre-pay and comparatively lower rate it sounds like you got a good deal to get you through a rough spot. Glad it worked out!

    • David @ says:

      I was surprised even the insurance companies would join in, but it does make sense. I’ll have to remember the term “title loan” just in case I need to borrow one day!

    • Travis @debtchronicles says:

      I found it interesting that the same term can mean so many things….in my case it was essentially like taking out an equity loan, or refinancing the car I already owned. It wasn’t an ideal situation, but there certainly are worse financial options!

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