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Let’s say you have overdue utility bills you’ve put off paying for as long as possible. Your services are now scheduled for shutoff. You have no savings, family members are tapped out and you lack the credit for a traditional bank loan. What do you do?
One option is a pawn loan, another is a car title loan – if you own a vehicle with sufficient value and have the income to make loan payments. Both can provide fast cash, but they differ markedly in fundamental ways. Here’s what you should know about pawn shop loans vs title loans to make an informed decision when you need cash right away.
What are Pawn Shop Loans?
A pawn loan is a secured form of lending that uses a borrower’s personal property as collateral. Such assets commonly include jewelry, watches, tools, electronics and collectibles. They also sometimes include vehicles.
With a pawn loan, you take an item of value to a pawn lender who evaluates your property and makes a loan offer. If you accept the offer, you receive cash that day, then make loan payments according to an agreed-upon schedule.
The pawn shop will retain your item until you’ve paid off your loan, which you can do at any time, plus interest and fees. If you do not repay your pawn loan as agreed, you’ll forfeit your collateral. The pawn lender will assume ownership of your property and sell it.
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What are Title Loans?
A title loan uses your vehicle’s title as collateral. Most auto equity lenders require borrowers to be at least 18 years old and live in the state in which they are requesting the loan. Borrowers must also prove they have the income to make loan payments, and own a vehicle of value registered in their name. Loan approval is primarily based on the applicant’s income and the amount of equity they have in the car or truck.
Upon loan approval and funding, a lien will be placed on the title. Borrowers can keep the vehicle during the repayment period as long as they remain current on payments. The lender will remove the lien once the loan is paid off.
How to Get a Title Loan
For a title loan serviced by LoanMart, you’ll need a government-issued photo ID, as well as proof of your income and address. You’ll also be asked to provide photos of the interior, exterior, VIN and odometer reading of the automobile. In some states you may also need to supply a DMV form authorizing placement of the lien.
Once you have gathered those documents, applying for a title loan serviced by LoanMart can take just five minutes.1 3 Here’s the simple process:
- Complete the short online form, or call 855-422-7412 to apply by phone1
- Submit the required documents, including photos of your vehicle
- Upon approval, which can happen in under an hour, review and sign your loan agreement1
- Deliver the vehicle’s title
- Receive your funds by the day following approval, sometimes even sooner3
As with all auto title loans, if you default on your payments, the lender can seize your vehicle and sell it to recover your outstanding balance.
Key Differences Between Pawn Shop Loans and Title Loans
While both types of loans both provide cash quickly, there are some key differences in the way they work:
- Collateral type. Pawn loans use personal assets such as jewelry, electronics, tools, or vehicles, while title loans exclusively use vehicles as collateral.
- Asset retention. Pawn stores will keep your collateral, title loans let you keep the vehicle and continue using it.
- Risk. Because pawn loans are only secured by the item and credit isn’t involved, pawn loans generally carry limited risk. However, if you’ve pawned your car and you default on your loan, the lender could keep and sell your vehicle. With title loans, you face repossession if you forfeit your loan, and your debt may continue even after you’ve lost your vehicle if its value doesn’t cover the loan.
- Credit impact. Pawn loans usually don’t require credit checks and aren’t reported to credit bureaus. Some car equity loans, including those serviced by LoanMart, do require a credit pull, although poor credit isn’t necessarily an obstacle to loan eligibility.1 While missed title loan payments can affect your credit score negatively, making on-time payments can help improve your credit standing over time.
- Debt obligation. A pawn loan concludes when the pledged item is forfeited or retrieved upon loan payoff. A title loan can create a legal debt obligation that will continue until it’s satisfied or otherwise resolved through collection processes.
- Collateral assessment. Pawn shops require you to bring in your vehicle or other personal asset for an in-person evaluation. Online car equity loans, including those serviced by LoanMart, allow you to submit vehicle photos for assessment.
- Repayment terms. Pawn loans usually have relatively short terms – typically 30 to 90 days – with extensions available for a fee. Car title loans often feature longer repayment periods. Title loans serviced by LoanMart typically have terms of several months.
- Loan amounts. Pawn stores usually lend between 25% and 60% of the item’s potential resale value, with the average pawn loan being about $150, according to the National Pawnbrokers Association. Meanwhile, the average title loan amount is around $1,000 and can reach as high as $15,000 in most states, when serviced by LoanMart.
- Interest rates. Both loan types carry higher interest rates because they represent more of a risk to the lender, when compared to lenders that have more stringent credit requirements. With that said, borrowers of loans serviced by LoanMart can always expect competitive rates when compared to similar types of loans.
Pros and Cons of Pawn Shop Loans and Title Loans
Pawn shop loans and auto equity loans offer fast cash access, often to those with poor credit, that is secured by personal property. But, like most financial products, both options have pros and cons.
Pawn Shop Loans
Pros:
- Easy qualification with your ID and item ownership
- Funds are available the same day, often within minutes
- No credit impact if you default – but you lose the item
Cons:
- Small loan sizes
- Risk of loss of the asset if the loan is unpaid
- Pawnbroker retains the pawned item during repayment
- High APRs and fees
Car Title Loans
Pros:
- Fast approval, even without perfect credit1
- Higher amounts possible, based on the borrower’s income and the vehicle’s value
- Borrower retains vehicle during repayment
Cons:
- High APRs compared to traditional loans
- Quick payoff potentially required if you choose a lender that only offers short-term title loans
- Risk of loss of the asset if the borrower defaults
Choosing the Right Loan for Your Needs
In general, you may want to consider a pawn if you can go without the item you are pawning briefly and plan a quick repayment. In this way, a pawn loan may be better suited to small, short-term cash flow gaps.
On the other hand, you may want to choose a vehicle-secured loan if you rely on your car for work or other day-to-day requirements, need a larger amount of cash, or want more time to repay. This type of loan can be ideal for emergencies, such as outstanding medical bills, without losing your transportation.
If a title loan seems the best fit, and you’re sure you can make payments, LoanMart-serviced title loans offer transparent terms and competitive interest rates, along with exemplary customer service and support. Apply today!
