Car Title Loans in Canada

This Page's Content Was Last Updated: January 10, 2023
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What You Should Know

  • Car title loans are a fast way to get funding using car ownership.
  • You must own the car outright and have no outstanding loans attached.
  • While you risk your car, the interest rate is above unsecured types of loans.
  • Your lender may attach a GPS and seize the vehicle if you frequently miss payments.
  • Loans with interest rates above 20% should be avoided if you can qualify for a credit card.
car title loans info

Car title loans are short-term against the title or ownership of your car. They are designed to offer borrowers quick access to cash without going through a traditional bank loan process. Additionally, most lenders won't require a credit score report. They are different from a car loan, used to buy a car you don’t own. Instead, a car title loan allows you to borrow against your own vehicle.

However, there are downsides to car title loans such as difficult to understand interest rates. Many car title lenders direct your attention away from the annual percentage rate (APR). Instead, they focus on your monthly payment and surface-level interest rates. Borrowers should focus on the APR, which shows the truthful cost of borrowing.

Most lenders have APRs exceeding 30%, which is worse than the 19.99% typically offered by credit cards. This guide will explain car title loans, including the tricks used, requirements, and alternatives. Continue reading to become an expert on using them to get money.

LenderDisplay Rate (No Fees)Calculated APR (Included Fees)
Canadian title store logo10% Annually34.16%
BIIM Financial logo3.8% Monthly48.13%
Title loans logo14% to 49% Annually64.86%

APR rates are inclusive of fees. They were calculated in December 2022 by applying with a hypothetical 2016 Honda Civic EX registered in Toronto. Assuming 120,000KM and looking for a $5,000 loan. Calculation examples are shown within the application process sub-section.

Canada Car Title Loans Explained

Car title loans, also known as auto title loans, are a type of secured loan that uses an individual's car as collateral. They provide borrowers with funding in days. In most cases, lenders want the car to be fully paid off and no older than six to eight years.

Since the car is used as collateral, frequently missing payments will result in vehicle seizure. Lenders typically enforce this using a GPS tracker and ignition immobilizer. In theory, this should result in lower interest rates because lenders have less risk. In reality, car title loans have interest rates exceeding some types of unsecured loans.

For example, car title loans have APRs exceeding 30%. While unsecured credit cards have rates around 19.99%. There is no risk of losing a car or asset for unsecured loans because the lender can’t seize anything.

Borrowers are assessed on a case-by-case basis. A multi-point system is used to determine your risk profile. Lenders will generally assess your employment status, debt service ratios, and car. In some cases, they may also require a credit report. With more income and a higher-value car, you are more creditworthy.

As a result, you can borrow more money at lower interest rates. Borrowers with more creditworthiness can also have longer repayment terms, typically up to five years. This will reduce your monthly payment but results in more lifetime interest paid.

Most lenders offer up to 50% financing on the value of your car. This means a vehicle with a $30,000 market value can be used to borrow up to $15,000. Additionally, most lenders require no existing lien on the car. This means you can't have an outstanding car loan.

After the car is used to secure the loan, borrowers can access their cash within days. Repayment terms usually range from two weeks to five years but can be extended depending on individual situations.

AdvantagesDisadvantages
  • Quick access to cash
  • No credit checks
  • High approval rates
  • No down payment
  • High interest rates
  • Complete ownership
  • Hidden fees
  • Default risk

Advantages of Car Title Loans

Car title loans offer various benefits. For car owners, it can provide an invaluable lifeline in times of financial hardship. Often the approval process is rapid and requires minimal paperwork. Some advantages include the following;

  • Quick access to cash: As mentioned, car title loans can be approved in just a few days, so you don't have to wait long before getting your money.
  • No credit checks: Many lenders do not require a credit check when approving a car title loan, making it easier to get the funding you need even if you have a low credit score.
  • High approval rates: Car title loans are assessed on a case-by-case basis. Lenders try to work with you for approval.
  • No down payment: Lenders don't require a down payment for car title loans, which can be helpful if you cannot put money aside.

Disadvantages of Car Title Loans

While there are several advantages of car title loans, there are also a few downsides. In most cases, you can reduce the disadvantages by reading through your car loan contract. Some downsides include the following:

  • High interest rates: Car title loan APRs in Canada can range from 30% to 60%, significantly higher than most other types of loans.
  • Complete ownership: Most lenders require you to own your car outright. This means no existing car loans or any liens.
  • Hidden fees: There may be additional charges not clearly stated in the agreement, so it's essential to read the fine print carefully.
  • Default risk: If you default on your payments, you may lose your car to the lender. This is a similar process to power of sale.

Tip: Avoiding Title Lender Tricks

This article was written by talking with many car title lenders. Through conversation, we picked up on some tricks that would mislead the general public. While some lenders offer reasonable interest rates, many have high fees and expensive payments. These are some things to be aware of:

  • Quoting interest rate as monthly: An interest rate below 5% is likely quoted as a monthly rate. Interest rates are usually displayed annually, which can mislead a borrower.
  • Not showing fees upfront: This is standard practice for lenders of all sorts. However, most car title lenders have additional fees ranging from 20% to 50% of the loan amount.
  • Directing attention to monthly payment: To compare lenders and ensure you’re getting the best deal, it’s essential to compare using an annual percentage rate (APR). You’ll have to calculate this using the monthly payment, term length, loan amount, and lending fees.

Car Title Loan Requirements

The requirements to get a car title loan differ from lender to lender. You'll typically need to meet the following requirements:

  • Be at least 18 years of age.
  • Have a valid driver's license and proof of car insurance.
  • Maximum car age of six to eight years old.
  • Potential maximum of 150,000 kilometers.

Additionally, some lenders may require a car GPS or immobilizer. This protects their loan if you stop making payments and they need to seize your vehicle. A GPS tracks your car, and an immobilizer will prevent your car from starting. Missing payments will activate the immobilizer, and your lender will seize the vehicle using the GPS. Some lenders may also need to hold a second pair of keys.

Documentation

When applying for a car title loan, you'll typically need to provide the following documentation:

  • Personal Identification: Many lenders require two photo IDs, such as a passport, license, or other government-issued photo ID.
  • Proof of Income: Some auto title lenders may require proof of income, such as two pay stubs or a letter from an employer.
  • Vehicle Details: You'll need to provide photo information of the car's interior, exterior, and odometer. Some lenders may require an appraisal and in-person inspection.
  • Vehicle Title Documents: One of the most critical documents is your car title document. This is necessary to prove that you are the car's legal owner.
  • Car Insurance: Lenders require that you have insurance on your car, so you may need to purchase it and provide proof.

The Finer Details

As mentioned previously, car title loans are collateralized against your car. This means frequently missing payments will result in foreclosure and seizure. The loans are designed to provide fast, short-term financing for car owners.

There is also a higher lender risk due to an easier qualifying process. As a result, the loan characteristics are designed with this in mind. This section will walk you through all car title loan characteristics.

Car Title Loan Cheat Sheet
Interest Rate
  • 30% to 60%
  • Rates above 20% should be replaced with a credit card
Fees20% to 50% of the loan amount
Loan-to-Value RatioUp to 50% of the car value
Term LengthOne week to five years
Repayment
  • Open: No fees for early prepayment
  • Closed: Fees for early prepayment
Processing SpeedFunding in one to three business days

Interest Rate

The interest rate for a car title loan in Canada typically ranges from 30% to 60%, depending on the lender. This is significantly higher than most other types of secured loans, and it's essential to keep this fact in mind when deciding whether or not to take out a car title loan. In addition to the interest rate, there may also be fees.

Fees

Each lender charges different fees in addition to the interest rate. These fees are typically not included in the interest rate, so comparing loans using their APR instead of the posted rate is essential.

It's common to see fees around 20% to 50% of the loan amount. This is because many lenders charge lower interest rates to draw customers and reveal the higher fees later in the application process. For example, a $4,000 loan could have $2,000 in fees.

This wouldn't be shown in the interest rate. Using an APR calculator will help you compare the truthful cost of borrowing. The following shows the common fees, each item is expected to cost a couple hundred dollars.

  • Application fees: This fee helps to defray the cost of processing an application.
  • Origination fees: This one-time fee compensates the lender for their work in arranging and processing your loan.
  • Late payment fees: If you miss a payment, you may be charged this additional fee to cover the lender's costs.
  • Processing fees: Some lenders charge a processing fee to cover the cost of additional paperwork or other associated expenses.

It's essential to be aware of all potential fees when taking out a car title loan, and it's also essential to ask about them directly before signing any documentation. By reading through your contract carefully and asking your lender questions, you can reduce the risks associated with car title loans and ensure that you make a wise financial decision.

Loan-to-Value Ratio

Most car title loans require a maximum loan-to-value ratio (LTV) of 50%. You can't borrow more than 50% of your car value. For example, if your vehicle's market value is $20,000, you can borrow up to $10,000.

Note that this varies on the lender and your type of vehicle. You can think of loan-to-value (LTV) as your lender's safety cushion. If they need to seize your car and sell it, a lower LTV makes it easier for them to get their money back.

As a result, you can expect higher LTVs on cars that retain their value and are easy to sell. For example, cars with lower mileage and more recent models.

Term Length

The most common term lengths range from one month to five years. However, this varies by lender; some may offer up to six years for more creditworthy borrowers. Longer terms typically have lower monthly payments since you spread costs over a longer time. However, this results in more lifetime interest paid and lenders charging a higher interest rate.

If you only need a small amount of money for a short period, then opt for a shorter length to keep your total interest as low as possible. However, if you need a more significant sum, a longer term may be better to decrease the monthly payment.

Repayment

Maintaining car payments is essential to ensure your vehicle is not seized. As with standard mortgages, each payment will include principal and interest. In most cases, the lender will deduct payments from your bank account through pre-authorized debits.

Not having sufficient funds will result in non-sufficient funds (NSF) fees from your bank and lender. Some lenders will delay your payment a few days if you contact them at least three business days in advance. This gives you time to ensure having money in your bank account. Additionally, you'll want to ask your lender if the loan is open vs. closed.

  • An open loan will allow you to prepay without penalties. However, closed loans have penalties.
  • With a closed loan, you could be stuck in a high-interest loan to avoid excessive fees.

As a result, an open loan is better if you expect to improve your financial situation shortly. This is because you can refinance into a lower-interest-rate loan.

Processing Speed

Generally, lenders can process your request within 24 hours. However, some may take up to 72 hours, depending on the complexity of your application. For example, you may be required to provide additional information or documentation if the lender needs to verify your income and creditworthiness before approving a loan amount.

Title Loan Application Process

After gathering all the documents and meeting the requirements, you can apply for a car loan. You can apply in person at a local car title loan company, or you can complete the application process online.

The application process for a car title loan is straightforward. You will typically need to provide your personal information and details about the vehicle you use as collateral.

Once you have submitted your application, a representative from the lender will typically review it and contact you to confirm that all of your documents are in order. They may also arrange to conduct a vehicle inspection or appraisal to verify the condition and value of your car.

Lenders will typically provide an offer that shows the monthly payment without any mention of your APR. You should also ask about the term length, fees, and interest rate. With this information, you can calculate your APR, showing your true borrowing cost. If you find the rate is too high, you can use an alternative listed below.

Example: Calculating Car Title Loan APR

Provided Information:

  • Borrowing Amount (Principal): $5,000
  • Monthly Payment: $294
  • Term Length: 3 Years

Calculation

  • Calculate Total Payment: $294 x 36 months = $10,584
  • Calculate Average Time to Payment: 3 Years / 2 = 1.5
  • Fill in the rest

Auto Title Loan Alternatives

Overall, a car title loan is a type of secured loan. You should expect an APR of around 30% to 60%. Avoid lenders charging more unless you don’t have better alternatives. Additionally, you can borrow up to 50% of your car's value as a lump sum. The main advantage of auto title loans is that you can expect to receive funding in a few business days.

Secured loans generally have lower interest rates because there is less lender risk. The safer your secured asset, the lower the interest rate your lender will charge and the higher LTV you can expect. The remainder of this section compares the top alternatives to car title loans.

Home Equity Loans

Homeowners can secure their home equity for interest rates beginning at 6%. Depending on your credit score and the value of your home, you can borrow up to 90% LTV. This means that on a $500,000 home, you can have up to $450,000 borrowed against your home. This includes your outstanding mortgage balance.

Home equity loans take longer to process. Expect up to two weeks for approval and funding. There are many different home equity loans;

  • HELOC: An account you can borrow and repay as needed. You'll only need to pay interest on withdrawn portions.
  • Second Mortgage: This doesn't affect your initial mortgage. Receive the loan amount as a lump sum.
  • Cash-Out Refinance: Replace your existing mortgage with a bigger one. Receive the difference as a lump sum.
  • Reverse Mortgage: Receive a lump sum or period payments you won't need to pay until selling your home.

Personal Loans

Personal loans, such as a line of credit, allow you to borrow with interest rates of around 8%. These are offered by banks and credit unions in Canada but there is a tougher application process. Additionally, you may need proof of income, such as your tax return or recent pay stubs, to qualify for a personal loan.

Credit Cards

Canadian credit cards have interest rates of around 19.99%. You can also withdraw cash using a cash advance. If your auto loan exceeds this rate, you’ll save money on your monthly payment by using a credit card. The main downside is that your credit limit may not be as high as a car title loan. There are various types of credit cards to meet all kinds of demands.

  • Bad Credit: For those without stellar credit scores. While many of these are prepaid, there are still unsecured options.
  • Balance Transfer: Allow you to switch debt from another card to a temporarily low interest rate of 0% to 2.99%.
  • Instant Approval: Receive approval within minutes. Your card will be delivered in five to seven business days.
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