Can You Get a Title Loan If Your License Is Suspended?

Title loans, a temporary source of funding for cash-strapped borrowers, are often described as easy to get but impossible to pay off. That's because interest rates and fees can snowball to many times the original loan amount. Missing one payment, or having your car impounded, can result in repossession. Although some lenders may require a valid driver's license, others may not; but the risk lies in your behavior during the loan term.

How Title Loans Work

If you own your car free-and-clear and there are no other liens against it, you can apply for a title loan. With a title loan, a lender loans you cash up to a percentage of the value of the car, anywhere from 20 to 50 percent. Loan terms are short and costly; 30-day loans are common, with annual percentage rates in the triple-digits, according to CNN. While borrowers usually have the option to roll the loan over into another 30-day period, the fees and interest charges can quickly exceed the amount of the principal balance.

Basic Title Loan Requirements

If you have a loan on the car or have other liens against it, you aren't eligible. You must supply a set of keys to the lender, in case they need to repossess it. Other requirements vary; for example, some lenders may require a valid driver's license, proof of insurance, and proof of income, while other lenders may only require verification of address and a "state-issued photo ID," according to the Mid-South Title Loans website. Still others may require a vehicle inspection.

Title Loan Risks

Aside from the financial risk of taking on a loan with exorbitant interest and fees, defaulting on a single payment can result in your car being repossessed. Title lenders are considered predatory because they only lend a small portion of the vehicle's value, then charge interest that practically guarantees default; when the borrower defaults, the lender repossesses the car, sells it, and keeps the difference between the loan and the car's value.

Read Title Loan Terms Carefully

Be sure to read the terms of your title loan carefully before signing on the dotted line. If your license is suspended during the term of a title loan, or your car is impounded, the lender may have the right to repossess the car.

In July 2010, a new federal law was passed that will create a Consumer Financial Protection Bureau, most likely during 2011, according to Americans for Fairness in Lending. This bureau will protect consumers from the predatory lending practices that title lenders use to help only one party: themselves.