For some people, their car is among their largest assets, and it can be a major part of their savings. Some even turn to the equity in their car to secure a loan, called a car title loan.
Unfortunately, title loans usually have steep interest rates and short terms, which result in very high monthly payments. If the terms of your car title loan aren’t as favorable as you’d like, but you aren’t ready or able to pay off your loan, then you can consider refinancing your car title loan. It’s possible to refinance your car title loan, as long as you meet the requirements to do so.
Key Points
• Refinancing car title loans can lower monthly payments and interest rates.
• Benefits include increased cash flow and improved loan terms.
• Requirements typically include current payments, car value, lender qualifications, and a clean title.
• The refinancing process involves applying with a new lender and updating the lienholder.
• Frequent refinancing may increase interest costs and extend repayment.
What Is a Car Title Loan?
A car title loan is a type of loan that uses your car as collateral to secure the loan and allows you to borrow 25% to 50% of the value of your car. You usually have to own the car free and clear to secure a car title loan, with only your name on the title.
Most auto title loans are short-term loans that can last as little as 15 to 30 days. Many car title lenders charge a monthly fee of 25%, which equates to an annual percentage rate (APR) of 300%.
Car title loans are available to those with poor credit, and some lenders don’t even require a credit check to qualify.
Recommended: Can You Refinance a Car Loan With Bad Credit?
Is Refinancing a Car Title Loan the Same as Refinancing a Traditional Car Loan?
No, refinancing car title loans is not the same as refinancing auto loans of the traditional variety because they are two different types of loans. When you refinance a traditional car loan, you continue to make payments on the car for a much longer period than you would a car title loan.
A traditional car loan is an installment loan that’s used to purchase a vehicle. These loans typically have terms lasting several years and charge relatively low interest rates, provided you have a good credit score.
On the other hand, a car title loan is a short-term loan taken out against the value of the vehicle, usually after the vehicle is owned free and clear.
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Can You Refinance a Car Title Loan for a Motorcycle or RV?
Yes, you can refinance car title loans on other types of vehicles, including motorcycles and RVs. In fact, you’ll use the same application process whether it’s a minivan or a motorcycle. At the end of the day, if it has a title, you can probably refinance it.
Benefits of Refinancing a Car Title Loan
There are several benefits to refinancing your car title loan that you’ll want to consider.
Lower Monthly Payments
Most car title loans have a very high interest rate and a very short term, sometimes the equivalent of as much as 300% APR. By refinancing your car title loan, you can potentially secure a longer term and a lower interest rate. If you can get one or both of these, then you’ll have a lower monthly payment.
Increase Cash on Hand
When you refinance your car title loan, you may be able to borrow more than what you owe on the loan. This will result in some cash out, giving you more cash on hand.
Lower Your Interest Rate
Having a lower interest rate means that you’ll pay less in financing charges over the life of the loan. A lower interest rate can also translate to lower monthly payments. Since typical car title loans have extremely high interest rates, this may be one of the most important reasons to refinance your car title loan.
Secure Better Terms
When you refinance your car title loan, the new loan can have better terms. For example, it may have no prepayment penalties and fewer fees.
Prevent Default on Your Current Loan
If you’re having trouble making payments on your current car title loan, then refinancing can result in lower monthly payments. If having a lower monthly payment allows you to avoid defaulting on your current loan, that can save you a tremendous amount of money in fees and allow you to avoid serious credit problems.
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Typical Requirements for Refinancing Your Car Title Loan
There are several steps in the process of refinancing an auto loan. To start, however, you’ll generally need to meet the following requirements for refinancing a car title loan:
• You must be current with your payments. Not being current with your payments will be a big red flag to lenders, and it will likely result in your loan application getting turned down.
• Your car needs to be worth more than the outstanding loan amount. Since you’re using your car as collateral, it will make it impossible to get a loan if your car is worth less than the amount you still owe on the loan. This is sometimes referred to as being upside down.
• You’ll need to ensure that your vehicle meets the lender’s qualifications. Car title loan lenders have qualifications for the cars they offer loans for. Usually they exclude cars that are too old or have too many miles on them.
• You must meet loan amount requirements. Car title lenders can have other qualifications you must meet, such as a certain loan-to-value ratio. This may have to be within the lender’s acceptable range in order to qualify.
• You must have a clean title. Many lenders won’t accept cars that have titles such as salvage, rebuilt, or commercial titles.
Recommended: What Credit Score Do You Need to Refinance a Car Loan?
The Takeaway
It can be possible to refinance a car title loan, which is typically a short-term, high-interest loan, provided you meet the lender’s requirements. Doing so can potentially help you lower your costs and get cash on hand, but you’ll have to meet the lender’s requirements.
If you’re looking to refinance your car loan, the most important thing is to make sure that you find the right loan for your needs.
If you’re seeking auto loan refinancing, SoFi is here to support you. On SoFi’s marketplace, you can shop and compare financing options for your car in minutes.
FAQ
Do you get a new title when you refinance your car?
When you refinance your car, the lender typically updates the lienholder information on your title rather than issuing a new one. The new lender becomes the lienholder, and the title reflects this change. The process varies by state, but the title remains in your name with the new lienholder listed.
What is the process for refinancing a title loan?
Refinancing a title loan involves applying with a new lender, providing vehicle and loan details, and undergoing a credit review. If approved, the new lender pays off the existing loan and issues a new loan, ideally with better terms. Ensure you compare offers to maximize savings and benefits.
How many times can you refinance a title loan?
You can refinance a title loan multiple times, depending on the lender’s policies and your ability to meet their requirements. However, frequent refinancing can lead to higher interest costs and extended repayment periods, so it’s essential to consider the financial implications before refinancing a title loan repeatedly.
Photo credit: iStock/FG Trade
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