Car title loan vs. secured personal loan

Photo of a woman looking at her phone with her car in the background.

August 6, 2024

6 min read

If you own a vehicle, a car title loan is one way to improve your chances of loan approval and borrowing money quickly. Your car becomes the collateral that backs your loan. But these short-term loans can come with high interest rates. A secured personal loan is one alternative to help with sudden expenses like emergency medical bills or urgent home repairs. You still use your car (or other collateral) to back the loan, but the repayment terms are often easier or simpler to meet than with a car title loan.

Here’s what we’re going to cover:

What is a car title loan?
How do car title loans work?
What is a secured personal loan?
Comparing car title loans to secured personal loans
Other options for quick loans
Oportun: Affordable lending options designed with you in mind

Key takeaways

A car title loan is a short-term loan, often with high interest rates that can help you qualify for a loan quickly. However, many states ban or restrict car title loans because of the danger they pose to consumers.
A secured personal loan can also provide quick access to funds. Secured personal loans typically come with longer repayment terms, lower payment sizes, and lower interest rates than car title loans.
Whatever type of loan you choose, you’ll want to be sure you can pay it back on time or you risk losing the collateral used to secure the loan.

What is a car title loan?

A car title loan is typically a short-term loan with a high interest rate, and is often available to people with bad credit history. A car title loan can help you get money quickly. The loan funds can be used for nearly any personal need. To qualify for the loan, you must own your car outright (no car payments) and use your vehicle as collateral to secure the loan. If you don’t make your loan payments, the lender can repossess your car to recoup the value of their lost loan funds.

What is collateral?
Collateral is something of value that helps secure your loan. You temporarily trade the valuable item, like your car title, for the loan funds. When the loan is repaid, you get it back.

What is repossession?
Repossession is when a lender takes ownership of the collateral used to back a loan, after the borrower fails to make payments on the loan.

How do car title loans work?

To apply for a car title loan, you provide information like your driver’s license and proof of car ownership. If your loan is approved, you trade your car title for the loan funds, and the lender returns the car title when the loan is paid off.

It may be easier to qualify for a loan when you use your car title to secure the loan, since the lender has the legal right to take ownership of your car and sell it, if you default on your payments. This helps lenders approve loans that otherwise may be too risky, for example, to applicants with no or low credit scores. In that way, even if you do not pay the loan back, the lender can recover the funds lent to you.

But car title loans can come with high interest rates and fees. If the loan lists a “monthly finance fee” of 25 percent, for example, this translates into a 300 percent APR (annual percentage rate), or the amount you owe for each year of a loan.

You have only a short time to repay a car title loan, usually 15 to 30 days. If you do not repay your loan on time, you risk owing more and more money in interest. This can put you into a cycle of increasing debt that is difficult to break. Worse still, you may lose your car, leaving you with no vehicle.

Depending on where you live, you may not be able to get a car title loan at all. In many states, car title loans are either banned or heavily restricted because of the danger they pose to consumers. Nationwide, 20 percent of title loans result in repossession of the vehicle. In California, that number jumps to a whopping 33 percent. Even if your car is not repossessed, the high APR on a car title loan means you may end up owing much more money in interest than the original amount you borrowed.

What is a secured personal loan?

A secured personal loan is a short- or long-term loan, typically with interest rates lower than a car title loan. A secured personal loan is another way to access funds by putting up collateral. The collateral for a secured personal loan could be your vehicle, but it could also be a bank account or other personal property.

A secured personal loan can help you get money quickly, and the loan funds can be used for nearly any personal need. If you don’t make your loan payments, the lender can repossess your collateral to recoup the value of their lost loan funds.

Compared to unsecured loans (no collateral required), secured personal loans may be easier to get or may come with more favorable repayment terms. The collateral helps lenders approve loans that otherwise may be too risky, for example, at larger loan amounts or lower interest rates. The collateral helps the lender know the borrower is motivated to repay the loan, and the lender can use the collateral to recover the funds lent to you even if you don’t pay it back.

Comparing car title loans to secured personal loans

Compared to car title loans, secured personal loans typically have lower interest rates, lower payment sizes, and give you more time and flexibility (like no prepayment penalties) to repay what you borrow. These terms can help make repayment easier than the terms of a car title loan, which can lower the chance of the borrower defaulting and the lender repossessing the collateral. Further, many people find that the fixed payment amounts help them with budgeting.

With a secured personal loan, you may qualify for a higher loan amount than you could get with either a car title loan or an unsecured personal loan.

Here’s a simple chart outlining the basic differences between these two types of loans. Loans vary from lender to lender, so you’ll want to look carefully at all the conditions before signing any loan agreement.

	Car title loan	Secured personal loan
Typical loan amount	25 to 50 percent of car’s value	$1,000 to $50,000
Typical repayment term	15 to 30 days	2 to 5 years
Typical APR	Up to 300 percent	Up to 36 percent
Collateral required	Vehicle title	Vehicle title, bank account, or other personal property

Other options for quick loans

What if you prefer not to offer any collateral for a loan? You still have several more alternatives for getting cash in a hurry. These include:

Unsecured personal loans (no collateral required)
Loans from family or friends
Cash advances against credit cards
Borrowing from lines of credit

Each of these options may come with its own drawbacks. Whatever kind of loan you choose, it’s important to be sure you can pay back the money you borrow.

Oportun: Affordable lending options designed with you in mind

Now that you understand the difference between car title loans and secured personal loans, you may want to explore Oportun’s affordable lending options. Visit our homepage to learn about: