Advance America: The Pros and Cons of Title Loans vs Registration Loans

When an emergency situation arises and you need money fast, using a vehicle as collateral for a loan can be a good solution.

But if you’re considering a title loan or a registration loan, it’s essential to understand what defines these very different loan types. While both are related to using a vehicle in exchange for funds, these two types of loans have their own pros and cons.

What is the Difference Between a Title Loan and a Registration Loan?

First, it's critical to distinguish between a vehicle's title vs. its registration. The title is used to indicate ownership of the car. When a vehicle is sold, the title will be transferred from the existing owner (often a dealership, bank or private seller) to the buyer. On the other hand, a registration signifies that the vehicle can be legally driven.

With that in mind, the critical distinction between these two loan types is that a title loan requires a clean title in the loan recipient's name. A clean title means there are no outstanding loans or unpaid tickets that would prevent the vehicle's sale. In contrast, registration loans only require that the registration is in the loan recipient's name, regardless of who the vehicle's title may identify.

The Pros of a Title Loan

  • Loan amounts may be larger - With a title loan, the loan amount is based on the vehicle's value. By securing the loan by offering the title as collateral, lenders may give out more money as they are more likely to be paid back.
  • Interest rates are lower - The interest rates on title loans typically are slightly less than registration loans due to the collateral provided by the vehicle's title.

The Cons of a Title Loan

  • The vehicle may be repossessed - Since the title is turned over to receive the loan, the loan company could attempt to repossess the car if it is not paid back on time.
  • The title must be clean - This means that there are no liens on the vehicle, whether that be an ongoing auto loan or unpaid tickets.

The Pros of a Registration Loan

  • The vehicle can be financed - A borrower does not need to own the car outright to be eligible for a registration loan.
  • The car cannot be repossessed - Since the title is the piece of documentation that signifies ownership, a loan company cannot stake a claim to the vehicle based on possession of the registration alone.

The Cons of a Registration Loan

  • Credit and income are factors - Since a registration loan is not secured, lenders will utilize standard loan requirements like employment and credit score to determine the loan amount. This means registration loans may not be readily available to someone who is unemployed or is working to build better credit.
  • Loan amounts may be less - Registration loans are often for lower amounts than title loans and typically come with higher interest rates.

Which is the Better Option?

The choice between a title loan and registration loan depends entirely on the situation of the borrower. Registration loans tend to be favorable for borrowers who need a smaller amount of money and are still paying off their vehicles. Title loans work best for car owners with a clean title looking for access to more funds.

Either way, it's important to understand loan requirements and expectations of payback before signing over the vehicle's title or registration.

Notice: Information provided in this article is for informational purposes only. Consult your financial advisor about your financial circumstances.

Source: Advance America


Categories: Personal and Family Finances

Tags: Financial Services, Personal Finance, Registration Loans, Title Loans

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Founded in 1997, Advance America, the country's leading state-licensed consumer lender, seeks to help every customer achieve their version of financial stability through a variety of innovative, regulated and transparent small-dollar credit options.