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How to Get Out of a Title Loan

hand signing a title loan

Life is expensive – rent, mortgages, education, groceries, transportation and other expenses add up. Most of the time, you need some form of credit to get by. Sometimes, people don’t use credit responsibly for a variety of reasons. Some people might experience job loss and rely heavily on credit for day-to-day expenses. Others might not know how to budget properly. No matter the reason, it’s common for Canadians to experience the effects of bad credit at one point or another.

If you have bad credit, life continues and you can still access financial services and products. But, those options become limited and come with a few setbacks. A title loan is one financial product available to Canadians with bad credit.

What is a Title Loan

Title loans are loans for people that already own a vehicle, and who also have a poor credit score. They are also known as car title loans, auto title loans, or vehicle collateral loans, but title loans aren’t only for cars. They are available for many different vehicles, including motorcycles, boats, trailers, and RVs.

Your vehicle secures a title loan, so the loan amount depends on the value of your car. The vehicle is your collateral, and that collateral lessens a lender’s perceived risk in lending to you. Title loans usually have quick approval times and don’t usually require a credit check, which is ideal for people with bad credit scores. If you don’t make your payments or cannot repay the loan, the lender can take the car away. Despite the collateral for the loan, however, title loans still have high-interest rates and fees.

Usually short-term loans, title loan term lengths range between 3 months and 3 years. You cannot obtain a title loan from banks or credit unions – only alternative lenders offer title loans.

How to Obtain a Title Loan

Before you take out a title loan, make sure you are aware of all relevant information about the loan. A lender has an obligation to inform you of the following:

  • Total cost of the loan (principal, interest, and fees)
  • Payment amounts and dates
  • Interest rate
  • Car description
  • Option to pay before the end of term, without fees

Before offering a title loan to you, a lender will require a car inspection, and ask you to prove the following:

  • You own your car
  • You’ve paid off your car or most of it
  • You’re a permanent resident
  • You have insurance

They’ll also need you to present:

  • Driver’s licence
  • Bank statements

Pros and Cons of a Title Loan


Quick Approval: Title loans have quick approval times (within a few days maximum), and are great options for people who need access to funds fast.

No Credit Check required: Poor credit won’t impact your ability to obtain a title loan.


High-Interest Rates and Fees: Interest rates vary depending on the value of your car and personal scenario, but rates are consistently high. Most title loans have average monthly interest rates of 25%. In Canada, lenders cannot charge you more than 60% annually in interest (APR). If a lender charges you interest above that threshold, submit a complaint.

You might also be subject to fees when you take out a title loan, such as:

Vehicle evaluation fee, to verify your car’s value

Search fee, to find out if you’ve been in any car accidents

Title search fee, to check for any liens on your car

Administration and registration fees

Installation fee, if the lender installs a GPS tracker in your vehicle

Make sure you ask your lender directly about any fees before signing a contract.

You can lose your car: If you cannot afford to make your title loan payments, the lender could take away your car. If you rely on your car for transportation to and from work, or for other obligations, losing your car might cause other financial problems.

What are the Alternatives to a Title Loan

Luckily, there are other ways to borrow money. Title loans aren’t your only option.

Credit Cards

When borrowing money through a credit card, you still accrue interest. However, the interest is usually lower than that of a title loan. You might consider using a credit card for funds instead of a title loan to save on interest.

Personal Loans

If you’re able to access any personal loans from a lender, or even from family and friends, consider this route before looking at title loans. Personal loans from banks also often have longer-term lengths than title loans, making the monthly payments easier to manage.

How to Get Out of a Title Loan

If you want to get out of a title loan, a few options are available to you:

Pay Off Your Loan

Title loans often allow you to pay off the loan early without incurring any fees. If you have the funds available, paying off the title loan early helps you save on the interest rates you would otherwise be paying, and takes the lien off your car. While this is the best option, it’s often not realistic for most people, since getting a title loan means you already have a tight budget.

Downgrade Your Car

If your car has a high value, consider selling it and buying a cheaper car. The funds from selling can help you pay off your loan in full, or save you a bit of money each month. And, you can get out of the title loan without giving up your main vehicle.

Negotiate With Your Lender

It’s worth having a conversation with your lender to learn about any options they might have to help you get out of the loan. After a few months, you might be able to negotiate a lower interest rate to ease the financial burden of your monthly payments. A lender might also extend your loan term, which can also lessen your monthly payments.

Furthermore, if a lender sees that you’re in a bad financial spot, they might worry that you’ll declare bankruptcy. In that case, they won’t get any of their loan back. So, they might consider making a deal with you so that they get some of their money back.

Stop Paying

If the loan is too great a financial burden, you might consider halting payments. But, this comes with consequences. Remember, if you stop paying for your loan or repay only part of it back to the lender, you’ll experience a negative hit on your credit score.

If you don’t want to make your monthly payments anymore, you might consider voluntarily surrendering your car to get out of the loan.

Final Thoughts

A title loan is a quick way to secure funds with poor credit. However, the interest rates and risk of losing your car are significant drawbacks to using a title loan. If you’re struggling with debt and are considering a title loan, consider our debt relief options.


Related to: How to Get Out of a Title Loan


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