A car title loan, also sold as a car equity loan or auto equity loan, lets you borrow against a vehicle you already own. The lender registers a lien on the car, you keep driving it while you repay, and if you stop paying the lender can repossess and sell it. The same structure is offered at very different prices: a credit union or bank lending against a paid-off car charges ordinary secured loan rates, while title loan companies that skip the credit check charge up to the legal maximum. This page explains how these loans work, what they cost, the warning signs of a predatory lender and the cheaper alternatives. It is part of our personal loans and lines of credit guides.
How a car title loan works
- Application. You give the lender the vehicle’s year, make, model, mileage and condition, and usually show that you own it outright or how much is left on any existing car loan.
- Valuation. The lender appraises the car, often against a wholesale guide such as Canadian Black Book, and offers a loan worth part of that value. The share varies by lender and by how much you still owe.
- Lien. The lender registers its security interest against the vehicle in the provincial personal property registry (under the Personal Property Security Act in most provinces). The registration tells anyone checking the car’s history that a lender has a claim on it.
- Funds. You receive the money, often within a day or two at title loan companies.
- Repayment. You make the agreed payments; once the loan is repaid, the lender discharges the lien.
- Default. If you stop paying, the lender can repossess the car and sell it. If the sale brings in less than you owe, you can still owe the difference.
The amount you can borrow depends on your equity: the car’s current market value minus anything you still owe on it.
| Amount | |
|---|---|
| Vehicle’s current value | $30,000 |
| Remaining car loan balance | $12,000 |
| Car equity | $18,000 |
If the car is paid off, your equity is its full market value. A car worth little, or with a large loan still on it, supports little or no new borrowing.
What car title and equity loans cost
No lender in Canada may charge more than 35% a year, and that limit includes all fees, costs and interest, not only the stated rate. Our guide to bad credit loans explains how the criminal rate cap is calculated. Within the cap, the price depends on who lends:
| Lender type | Typical rate | Credit needed |
|---|---|---|
| Credit unions | 7%-12% | Moderate |
| Banks (refinancing an existing auto loan) | 7%-11% | Good |
| Online lenders | 9%-19% | Fair |
| Car title loan companies | Up to 35%, the legal maximum | Poor or none |
| Private lenders | Varies, often high | Flexible |
Set-up or administration fees count toward the 35% limit, so ask for the annual percentage rate (APR) and the total cost of credit in dollars before signing.
A $10,000 loan repaid monthly over 24 months:
| Annual rate | Monthly payment | Total interest |
|---|---|---|
| 25% | $533.72 | $2,809 |
| 35%, the legal maximum including fees | $585.19 | $4,045 |
Some title lenders quote a monthly or flat fee instead of an annual rate. A fee of 10% a month works out to well over 100% a year, and a flat 25% fee on a 30-day loan to several hundred percent a year: both far above the cap. A quote in that form signals a lender charging above the legal limit, not a normal cost of borrowing.
Provincial rules
Provinces license consumer lenders and set the disclosure they must give, including the total cost of credit, and some add rules for high-cost credit. Alberta, for example, requires a separate high-cost credit licence for lenders whose loans carry an APR of 32% or more. The bad credit loans guide covers these rules alongside the federal cap; your provincial consumer protection office can confirm whether a lender is licensed.
Red flags when comparing title lenders
- No credit or income check at all. A lender that doesn’t care whether you can repay is relying on the car.
- Rates quoted per day, week or month instead of as an APR, which hides the annual cost.
- Very short terms or a balloon payment that leaves a large lump sum due at the end, making default more likely.
- Pressure to roll the loan into a new one, adding fees each time.
- No provincial licence, or pressure to sign before you’ve read the agreement and its total cost of borrowing.
Alternatives to a car title loan
Most alternatives cost less than a title loan company. A credit union or bank loan against the same car charges ordinary car loan rates; a secured loan backed by savings or a GIC puts a different asset up as security; and an unsecured loan from one of the lenders in personal loan lenders compared puts no asset at risk at all. Homeowners can borrow against their home at lower rates; see HELOC rates. For a small, short-term need, payday loan alternatives lists options such as an employer pay advance or a credit union emergency loan.
If you already have a title loan and are falling behind, contacting the lender before a payment is missed gives the most room to restructure, and your province may require notice before repossession. Non-profit credit counselling can help you plan, and a lower-rate loan from a credit union or bank that pays off the title loan cuts the remaining cost.