When it comes to fast loan options with high approval rates, title loans rank at the top of the list. If you need money to pay an urgent expense, car title loans in Texas are an excellent option. It’s always a smart idea to fully understand how a loan works before you apply for it, though, and that’s why you should make sure you’re familiar with Texas title loan laws.
The following will break down all the rules and regulations you need to know about when you get a title loan in Texas. But first, we’ll cover the federal government’s role in the title loan industry.
Federal Title Loan Laws
Title loans are one area where the federal government doesn’t interfere much and instead gives each individual state the leeway to set its own regulations. The only important federal law you need to know about when it comes to title loans is the age minimum, which is 18. For that reason, title loan companies in every state will ask to see your government-issued ID so they can verify your date of birth before issuing your loan.
How Title Loans Work
If you don’t know how title loans work, this brief overview will explain them for you. Title loans are secured loans, and secured loans are any loans that have a piece of the borrower’s property attached as the loan’s collateral. In this case, the property you put up as collateral is your car. That means you must own the car and it needs a lien-free title. Your car’s value will determine how much the lender approves you to borrow.
You don’t need to give the lender your car over the term of your loan, just your car title. After the loan is fully paid off, the lender returns your car title. You’ll have a payment due date at the end of the term when you need to pay the balance on your loan.
Texas Title Loan Laws
Now, let’s go over how title loans work in Texas. Although the state has set some laws regarding title loans, for the most part, it leaves title loan companies and borrowers free to set up their own arrangements.
Maximum Title Loan Amounts
One of the biggest benefits of getting a title loan in Texas is that the state hasn’t set a cap on title loan amounts, which means you can get as much as you need. Of course, your car needs to be worth enough. Lenders calculate your car’s current market value by using a vehicle value guide and doing a short inspection to check the condition of the car. Once they figure out the car’s value, they will base your maximum possible loan amount on this.
To keep themselves safe if you default on your loan, lenders obviously won’t loan you your car’s entire value. Most will set the maximum loan amount somewhere from 30 to 50 percent of your car’s value. With a car that has sufficient value, you could easily borrow thousands of dollars, and you get cash for car title loans in Texas.
Title Loan Interest Rates
Texas does put a cap on title loan interest rates, and it’s among the lowest in the nation at just 10 percent. However, your title loan could end up costing more than that for the following reason.
Title Loan Fees
Many title loan companies in Texas function as credit access bureaus. A credit access bureaus doesn’t provide a loan but instead facilitates a loan between you and another lender. That lender must follow the state’s interest rate limits, but the credit access bureau can charge its own fees for its role in the transaction. This is why you could have a title loan that costs you more than just that 10-percent interest rate.
0-Percent Title Loans
Not many states offer title loans with 0-percent interest rates, but Texas does. If you’re wondering how a lender can offer a 0-percent interest rate, note that this interest rate only applies for an initial introductory time at the beginning of the loan. If you pay the loan back in full before that introductory period ends, then you’ll only need to pay back the amount you borrowed without any interest. A common introductory period is one 30-day term.
Once that introductory period ends, you’ll need to refinance the title loan if you need to keep it going. For this reason, one of the most important car title loan in Texas tips is that you should have a plan to pay back your title loan as quickly as possible. You could end up with a great deal, especially with a 0-percent title loan, but you need to pay it back promptly.
Title Loan Terms
The length of a title loan term in Texas is another area where the state gives lenders and borrowers plenty of flexibility. There’s no minimum length for a title loan term, and the maximum is 180 days. Considering title loans are short-term loans, it would be rare for a lender to offer a 180-day term, anyway. Most lenders stick to terms of around 30 days.
Now, if the end of your title loan term comes and you don’t have enough money to pay it off, your other option is to renew it. This requires that you pay at least your interest on the loan. You’ll then start a new term with any unpaid loan principal and a new interest charge, which is the cost of extending the loan. Remember that the 180-day limit still applies, and you can’t extend your loan past 180 days.
Defaulting on a Title Loan
Extending a title loan is always better than missing your payment, because if you do that, then you’ve defaulted on your title loan. Per the terms of your title loan contract and state law, defaulting on the loan gives the lender the right to come repossess your car, or you can turn it over to them voluntarily.
Texas doesn’t have any right to cure or legal waiting period that the lender must give you before repossession, which means they could conceivably come take your car as soon as you default. Most lenders won’t, but how long they wait is impossible to predict. The smart decision is to get in contact with your lender if you’re having payment issues and ask about an extension.
If a lender repossesses your car, they can then sell it to recoup what you didn’t pay on your loan. You may be able to catch up on your payments and buy your car back from the lender. Again, communication is key if you want to do this.
That covers all the major Texas title loan laws. Even though the state isn’t too restrictive about title loans, you should still know the law so you know what to expect if you decide to get a title loan. Since there is some flexibility regarding loan terms, it's important that you talk to your lender and make sure you fully understand your loan agreement.