Title loans

From: Financial Consumer Agency of Canada

What is a title loan

A title loan is an option for borrowing money if you have a low credit score and own a car or another vehicle. You use your car as a promise you’ll pay the money back. You keep and continue to use your car when you get a title loan. If you don’t make your payments you could lose your car.

Title loans are typically short-term, ranging between 3 months and 3 years. They usually have high interest rates and fees. This makes it an expensive way to borrow money.

Title loans are also known as:

  • car title loans
  • auto title loans
  • vehicle title loans
  • vehicle collateral loans

You can use other types of vehicles that you register in your province or territory to guarantee a title loan, including:

  • motorcycles
  • boats
  • recreational vehicles
  • trailers
  • heavy-duty equipment

Banks and credit unions do not offer title loans. Title loans are available from alternative lenders in stores and online.

You risk losing your car if you don’t make your payments. This could make it harder for you to earn money. For example, if you have trouble finding new transportation to get to work.

What to expect when you get a title loan

Title loans vary between lenders.

Some lenders won’t give you a title loan if you owe money on your car.

Some lenders use the value of your car to determine:

  • the interest rate you’ll pay
  • your repayment terms
  • the amount of money you can borrow

Even if you’re approved, consider whether you can pay the loan back:

  • don’t borrow more money than you need
  • always have a plan to pay it back
  • don’t stretch your budget to the limit or you risk losing your car

Read the details of your contract carefully. Ask your lender for a copy of the agreement to review at home before you sign. Ask about anything you don’t understand.

Find out what to consider before borrowing money.

What you’re entitled to know before taking out a title loan

When you get a title loan, you have the right to receive specific information in your contract documents.

The lender must provide the following:

  • the total cost of your loan (the amount you’re borrowing, the amount of interest you’ll pay plus any other fees)
  • the amount and timing of payments
  • the annual percentage rate
  • the option to pay, in part or full, before the due date of your loan, without paying any additional fees
  • a description of your car

In some provinces and territories the lender may include more information in the title loan contract.

Contact your provincial or territorial consumer protection office.

Liens

A lien is a lender’s claim for repayment that is registered against a car.

Most lenders will check to make sure there isn’t already a lien on your car. If there is already a lien, the lender may still offer you a title loan if your car can be sold for more than the amount of the existing lien.

If you stop making payments, the lender may use the loan agreement to seize your car. The lender may then sell your car to cover the cost of the loan.

The lien will stay registered on the car until the title loan is paid off.

You should make sure that the lender removes the lien after you’ve paid back the loan.

Learn more about risks associated with car liens.

What you need to provide a title loan lender

The lender may ask you for:

  • proof that you own your car
  • proof that you’ve paid off your car or owe a small amount on it
  • proof of permanent residency
  • proof of insurance
  • your driver’s licence
  • a bank statement
  • an inspection of your car

GPS and car immobilizer devices

Lenders may install a Global Positioning System (GPS) device and a car immobilizer or keep a copy of your keys when you get a title loan.

A GPS device allows a lender to track the location of your car. A car immobilizer (also known as vehicle or ignition immobilizers or starter interrupters) allows the lender to shut off your car’s starter remotely. Depending on the province or territory you live in, these devices may not be allowed.

The lender may charge you fees to install these devices. Make sure you understand how the lender will use these devices before taking a title loan.

Missing a payment, making a late payment or defaulting on your loan can trigger the lender to activate these devices to find and seize your car.

Find the rules and regulations for title loans in your area.

Interest rates

Interest rates on title loans can be as high as 60% per year depending on the terms of your contract.

By law, lenders cannot charge more than 60% interest annually, which includes all fees, costs and interest that you’ll pay to get the loan.

If you think you are being charged more than the legal maximum, submit a complaint.

Fees

Fees vary between title loan lenders. Before you sign a contract, be clear on the fees associated with your title loan.

Ask if the fees are included in the interest rate that is being advertised. If they aren’t included this could mean you’ll also pay interest on fees. This will make your title loan more expensive.

Lenders may charge some of these fees:

  • vehicle evaluation fee to determine the value of your car
  • title search fee to see if there are any liens on your car
  • search fee to see if your car has been in any accidents
  • administration fee to set up and maintain your account
  • roll-over fee to extend the term of your loan
  • registration fee to put a lien on your car
  • installation fee to put a GPS tracker and ignition immobilizer in your car

Example: How much title loans cost

In this example for a 3-year, $4,000 loan at a 35% annual interest rate with $600 in fees, you will pay $2,891 in interest. The total amount owing will be $7,491. Your monthly payment will be $208.

Note: in this example, interest is charged on the fees. Amounts have been rounded to the nearest dollar.

Table: How much title loans cost
Loan details Value
Amount of loan $4,000
Annual interest rate 35%
Fees $600
Term 3 years
Monthly payment $208
Total interest paid including interest paid on fees  $2,891
Total repayment amount paid to the lender including interest and fees  $7,491

Getting money from your title loan

Most lenders will offer the loan as a direct deposit to your account at your bank or credit union. Some lenders may agree to provide the loan in cash or cheque if you visit them in person.

Learn about your right to open a bank account.

Paying back your title loan

Most lenders require pre-authorized debits to pay back the loan. This means money will automatically be taken from your bank account for each payment. Make sure to ask your lender when your payments will be and get this information in writing.

To be sure that you can make your loan payments on time:

  • keep enough money in your account to avoid paying extra fees and non-sufficient funds (NSF) fees from your bank or credit union
  • apply for overdraft protection to help you avoid declined transfers and NSF fees

Learn about pre-authorized debits.

Insurance and title loans

Your title loan lender will ask for proof of insurance on your car when you apply for a title loan. You have the right to get insurance from any insurance provider you choose.

Lenders do this to make sure they are paid back for the loan if your car is in an accident or stolen.

In some provinces and territories, it’s your responsibility to let your insurance company know anytime a lien is registered on your car. If you don’t do this and your car is in an accident or stolen, your insurance company may deny your claim. This means that you would be responsible for paying the remaining cost of your title loan yourself and may no longer have your car.

Check with your insurance company before you get a title loan.

What happens if your car is in an accident or stolen

If your car is in an accident or stolen you are still responsible for paying back your title loan.

Your insurance company will review your claim and may decide to settle the claim directly with your lender. Part or all of the insurance claim money may go directly to the title loan lender.

If your car is a write-off or stolen:

  • your insurance company may directly pay your lender the value that your car could be sold for before it was in the accident or stolen, known as the market value of your car
  • if the market value doesn’t cover your loan, you will be responsible for paying the lender the rest of the loan amount

In some provinces and territories the lender could sue you for any money left owing after the claim has been settled if you don’t pay the rest of the loan amount.

Learn more about car insurance.

What happens if you can’t pay back a title loan on time

If you miss a payment or can’t pay back your title loan by the due date:

  • the lender may charge you a fee if there isn’t enough money in your account
  • your bank or credit union may also charge you a non-sufficient funds (NSF) fee if there isn’t enough money in your account
  • you may enter into more debt and pay additional fees if you extend the term of the loan, known as rolling-over the loan
  • you may hurt your credit score if you miss a payment or don’t pay the loan back
  • the lender may activate a GPS tracking device and ignition immobilizer
  • the lender may seize your car
  • if the lender seizes your car, you may have to pay costs associated with the seizure

What happens if your car is seized by the lender

If your car is seized the lender can sell it to cover the remaining costs of the loan and any costs related to its seizure and sale.

If this happens:

  • you will get the leftover money if your car is sold for more than the remaining cost of the loan and costs for the seizure and sale of your car
  • in some provinces and territories you will have to pay the lender the difference if your car sells for less than the remaining cost of the loan and costs for the seizure and sale of your car

If there is more than one lien on your car, the proceeds from the sale will be used to pay all lenders back. Any leftover money will be returned to you. If there is a shortfall, you will have to cover the remaining cost of the loan. Check with other lien holders to make sure they have been paid and liens have been removed from your car.

Seize or sue

In some provinces and territories, the lender must choose to either seize the car or sue you. If the lender chooses to seize the car, you will no longer owe the lender any money.

Seize and sue

In other provinces and territories, the lender may seize the car and sue you. If you still owe money to the lender after your car has been seized and sold, the lender can also sue you if you don’t pay them.

Contact your provincial or territorial consumer affairs office for rules in your area.

Options to consider before getting a title loan

Before getting a title loan, consider whether you really need the money and how you will use it.

If you’re using the loan money to cover your monthly bills, you could go into more debt and find it difficult to repay the loan.

Here are some options to consider before getting a title loan:

Create a budget

A budget is a plan that helps you manage your money. It helps you figure out how much money you get, spend and save. A budget can help you set aside some money each month to help you avoid taking on more debt to cover your monthly expenses.

Use the Budget Calculator to create a budget.

Ask for more time to pay your bills

Consider contacting the people or businesses that you owe money to. Ask for more time to pay your bills. Tell them when you get paid and offer to write a post-dated cheque for that day.

Learn about getting help from a credit counsellor.

Consider cheaper ways of borrowing money

If you need the money immediately, look into less expensive alternatives that may work for you.

You may want to consider:

  • cashing in vacation days
  • asking for a pay advance from your employer
  • getting a loan from family or friends
  • getting a personal loan from your bank or credit union
  • applying for overdraft protection with your bank or credit union
  • getting a line of credit from your bank or credit union
  • getting a cash advance on a credit card

Getting out of a title loan

The faster you pay your loan off, the less interest you’ll pay. You can increase your payments or pay off your loan completely, at any time, without penalty.

Make sure that the lender removes the lien after you’ve paid off the loan.

Use the Financial Goal Calculator to make a plan to pay off your debt faster.

Title loan rules where you live

Title loans are not regulated by the federal government.

Each province and territory has different rules and restrictions for title loan lenders. For example, in some provinces and territories title loan lenders need to have a license or be registered to operate.

To file a complaint or to find the rules and regulations for title loans in your area contact your provincial or territorial consumer affairs office.

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