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Guide to Refinancing a Car Title Loan

Guide to Refinancing a Car Title Loan
Jason Steele
Jason SteeleUpdated December 21, 2022
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Editor’s note: Lantern by SoFi seeks to provide content that is objective, independent and accurate. Writers are separate from our business operation and do not receive direct compensation from advertisers or partners. Read more about our Editorial Guidelines and How We Make Money.
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.

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.

Is Refinancing a Car Title Loan the Same as Refinancing a Traditional Car Loan?

Not really, due to the fact that they are different types of auto 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, such as a 70-month or a 144-month auto 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. 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.

Can You Refinance a Car Title Loan for a Motorcycle or RV? 

Yes. These loans are called car title loans, but they can actually work 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, shifting the fundamentals of a car loan. 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. Defaulting on a loan is one of the most damaging things you can do to your credit, and it has a very large, negative impact that can last for many years. 

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 typical 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 that 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. 

Refinance Your Car Loan Today With Lantern

If you’re looking to refinance your car loan or apply for an online personal loan, the most important thing is to make sure that you find the right loan for your needs. Lantern by SoFi can make this process easier. Lantern offers a variety of auto loan refinancing options in its marketplace, so you can compare auto refinancing rates from top lenders and prequalify to refinance your car loans in minutes. There are no application fees when you compare refinancing options, and there’s no obligation to move forward.Find out what auto loan refinancing rate you qualify for.

Frequently Asked Questions

Do you get a new title when you refinance your car?
What is the process for refinancing a title loan?
How many times can you refinance a title loan?

About the Author

Jason Steele

Jason Steele

Jason Steele has been writing about credit cards and award travel since 2008. One of the nation's leading experts in this field, he has contributed to dozens of personal finance and travel outlets and has been widely quoted in the mainstream media.
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