|There is a fair number of cheap lodgings in Toledo including "hostales", pensions, & youth hostels. One can read reviews and recommendations of several of Toledo's Hostels in the "Hostels & Other Lodgings" forum of MadridMan's ALL SPAIN Message Board.
What is a hostel? Hostels & Pensions in Toledo are budget hotels. And just as hostels and pensions are throughout Spain, they are typically family owned and operated, clean, basic lodgings with small-ish rooms and, oftentimes, with ensuite bathrooms. Rooms with "shared" bathroom facilities are generally cheaper than those with private bathrooms. Many times, just as in Toledo, they are located in some of the most interesting, historical, and active parts of the city at very good prices. Don't confuse hostels in Spain with youth hostels, however. Youth-hostels are called "albergues juveniles" (or just "albergues") in Spanish while hostels are called "hostales", pensions are "pensiones".