The Difference Between Title Loans and Title Pawns

Title loans and title pawns often get lumped together as a way to use one’s vehicle as collateral to get quick cash to cover some situation or another, especially when a bank loan is impossible. While there are similarities between the two, there are distinctive dissimilarities – one in particular. 

With that said, here’s the difference between title loans and title pawns.

What is a Title Loan?

These short-term loans are usually due in a couple of weeks to a month and are secured by your vehicle, which means approval rates are relatively high. You’ll be required to turn your lien-free title over to the loan company until you repay the loan. 

Loan amounts are generally based on the vehicle’s value as determined by the lender, and on your loan repayment ability. You can often get between 25-50 percent of the value.

What is a Title Pawn?

If you’ve ever hocked anything at a pawn shop – jewelry or a TV, say — it’s the same with a vehicle: you’re basically selling it with the option to repurchase it by forking over the amount you got, plus interest and fees. How much is offered generally depends on the vehicle’s value as determined by the pawn shop, which will lend you a percentage.

What are the Similarities Between Title Loans and Title Pawns?

Neither of them focuses on your credit history, for one thing. While some title lenders will pull your credit, people with poor credit get approved every day. And pawn shops don’t look at your credit at all. So, in that way, they are both alternatives to traditional bank loans.

And as we say, both types of loans use your vehicle as collateral and produce fast cash. Both are also simple and easy to apply for. Title loans and title pawns will also accept as collateral RVs, trailers, motorcycles, and boats, in addition to cars and trucks.

Further, with both loan types, your vehicle could be sold if you fail to make payments.

How Do Title Loans Work?

It depends on the loan company and the state in which it’s located, but requirements are usually that you’re at least 18 and have a government-issued ID and proof of residence (bills, lease agreement, etc.). 

For title loans, you’ll also need to submit proof of income. If you’re employed, that means pay stubs or bank statements and the like. If you’re not employed but have another type of regular income source – Social Security, disability, Worker’s Compensation, rental income, settlement, etc. – that’s acceptable as well.

Rather than having to bring the vehicle in for appraisal, title loan companies merely ask the borrower to send in photos of the vehicle, inside and out, including shots of the odometer and VIN. The vehicle’s value is then based on its make, model, condition, mileage, and age.

How Do Title Pawns Work?

Terms are usually for four months, although you can typically get the repayment period extended.

In addition to the vehicle and title in your name, you’ll generally need vehicle keys, a valid government-issued photo identification, and proof of insurance, although some shops will waive the latter.

What’s the Key Difference Between Title Loans and Title Pawns?

The chief difference is a biggie: with title loans, you’re merely required to turn over your clear title to the title company until the loan is repaid.

However, with title pawns, you must give up the title AND vehicle until you pay off the loan amount. That can preclude you from, for instance, using the vehicle to get cash for loan repayment. It’s also super inconvenient.

Title loans also offer more flexible repayment terms. It’s good to know the difference between title loans and title pawns – especially that with title loans you get to keep your ride. Choose wisely.