A common question for car owners with an existing loan is can you get a title loan with a financed car? The answer is not a simple straightforward yes or no, but rather depends on the specifics of the vehicle and the amount financed.
A car title loan is secured by the equity in the vehicle. This means there must be enough equity in the vehicle for the lender to be able to make the title loan.
To determine whether or not you can get a title loan on a financed car we need to know how much equity you have in the vehicle. If there is enough equity to support the loan amount, then yes you can get a title loan on a financed car.
Financed Vehicle Equity Amounts
When you finance a vehicle you are borrowing money to pay for the car. You make monthly installments until the loan is paid off. Over time the vehicle will usually depreciate, meaning it will lose value. This means there are two types of equity possible with a financed car:
- Positive Equity – positive equity means the vehicle value is more than the loan balance. This happens when the down payment is significant and/or the principal payments are greater than the rate of depreciation.
- Negative Equity – negative equity means the loan balance is more than the vehicle value. This is also known as being upside down in the loan. This happens when the down payment is very small and the vehicle depreciates faster than the principal payments.
To get a title loan on a financed car you will need to have a good amount of positive equity in the vehicle. We’ll explain exactly why.
Title Loan Maximums – Vehicle Value
The amount you can borrow with a title loan is typically limited to 50% of the vehicle’s fair market value. For financed vehicles, this means the title loan amount will be limited to 50% of the equity you have in your vehicle.
To make the loan possible you will need to have at least several thousand dollars of equity in the financed vehicle. The closer to being fully paid off the better, as this makes a title loan buyout possible. It is still possible to have a significant amount of equity in a financed car at any time.
Title Loan on Financed Vehicle Examples
To help illustrate what a title loan on a financed vehicle might look like let’s take a look at a few examples. In each of these examples the equity in the vehicle is more than the amount owed on the loan.
| Vehicle Value | Loan Amount | Equity |
|---|---|---|
| $20,000 | $5,000 | $15,000 |
| $15,000 | $4,000 | $11,000 |
| $10,000 | $2,000 | $8,000 |
| $5,000 | $2,000 | $3,000 |
In each of the above examples getting a title loan is feasible because the amount owed on the existing loan is much less than the equity of the vehicle.
This means the borrower could get a title loan for an amount greater than their existing loan amount, letting the title lender pay off the existing loan. The other way to get a title loan on a financed vehicle is much less common – a second lien title loan.
Second Lien Title Loans
There is one more way to get a title loan on a financed car. That is a second lien title loan. These loans allow the title lender to record their lien on the existing title along with the original lender.
In these cases you will need to continue paying your original car loan while paying the title loan. This can get complicated and many lenders do not allow second liens.
Conclusion
Can you get a title loan on a financed car? Yes, assuming there is enough equity in the vehicle to support the loan. Whether or not this is a sound financial decision is a completely different question. Make sure to analyze all relevant cost data and never get a loan you cannot repay.