We can all agree that, at times, unexpected expenses may take a toll on your finances. You may seek alternatives if you don’t have enough finances to cover them. In instances like this, a car title loan can help you get the cash you need.
A title loan is a form of a secured loan that you can get with your car as collateral. Though it comes with high interest rates, you can get approved in minutes.
With over 2 million people using their vehicles to secure a loan every year, title loans continue to be popular. But before taking one, you should understand its pros and cons to avoid getting your car repossessed.
Here’s everything you should know about title loans before getting one:
How Title Loans Work
Provided you own a vehicle, you can apply for a title loan without the need for a credit check. The lender will send you the cash instantly once you hand over your car’s title.
Most lenders have a loan limit ranging from 25 percent to 50 percent of a vehicle’s value. They’ll also require you to pay the loan in a span of 15 to 30 days, depending on the loan agreement terms. Be prepared to incur hefty annual interest rates of about 300 percent.
Depending on the need, your title loan may be as low as $100 or as high as $10,000. Take time to compare the interest rates from different lenders before applying for one. If you need more insights on the best title loans, have a look at this informative article.
Title loans are pretty expensive when compared to traditional short-term loans. However, they are more convenient than other loans since they favor borrowers with bad credit. The loan has zero effect on your credit score because the lender won’t report your loan payments to any credit bureaus.
Requirements for a Title Loan
You may opt for a title loan if other financing options favor your credit score and savings. Note that the lender will place a lien on your car for them to give you the cash. Remember to check whether your state allows you to get a title loan.
If you live in a state where title loans are legal, you’ll need your vehicle and its title as the basic requirements for the loan. Some lenders will allow you to submit applications through their website. Either way, they’ll need you to verify your vehicle’s condition and the relevant paperwork before releasing funds.
Have a valid vehicle title and government-issued identification that matches the title’s name to prove ownership. You should also give proof of residency or utility bill receipts with your name on them. Other vital documents needed for the loan include proof of auto insurance and valid vehicle registration.
The lender may require your recent payslips or other documentation to prove your financial ability. They will also ask for the names and contact details of two references and a copy of your car keys.
Depending on the lender’s title loan terms, you may have a GPS tracking device in your vehicle. The tracking device will make it easier for the lender to repossess the car if you default on the loan. It’s legal for loan providers to install these devices on cars when giving out loans.
Understanding the Pros and Cons of Title Loans
Understanding the advantages and disadvantages of title loans can help you decide whether you need one. Here’s a detailed breakdown of these pros and cons for your consideration:
A title loan provider won’t run a credit check when you ask them for the loan. This ensures that you can get the quick financial assistance you need if you’re struggling to build your credit score and looking.
Title loans have a pretty quick approval process that makes them convenient to borrowers. Once you fill out an application form for the loan, the lender will process the money on the same day. You’ll also receive the cash in your bank account instantly or within a few days, depending on your banking provider.
The lender will allow you to continue using the car as it serves as the loan collateral. You can also keep the vehicle as long as you repay the loan within the specified duration.
With the convenience that title loans have, lies high-interest fees and rates. Review the interest rates and plan how to repay the loan to avoid falling into debt.
Unlike other short-term loans, title loans have shorter repayment terms (ranging from 15 to 30 days). You may lose ownership of your vehicle if you cannot repay the loan in the specified time. The lender will also charge you more fees and interest on top of the loan amount.
Are There Any Consequences for Defaulting the Loan?
Most lenders mandate you to make the loan payments as specified in their contract. They also require you to communicate in advance if you aren’t in a position to raise the money on time.
Depending on the lender, several missed payments may lead to a loan default. The lender will notify you about the default status before taking any action. If you fail to settle the missed payments, the lender has a legal right to repossess your vehicle.
Once repossessed, the vehicle will be sold to recoup the loan amount. The lender may keep all the proceeds from the car sale depending on your state’s laws on title loans. They may also give you the remaining amount once the loan amount and interests have been subtracted.
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Though title loans can help you get out of a tricky financial situation, you need to review the loan terms. You should also take them if your income can cover the high interest fees and rates. Compare the rates and loan duration from different lenders to find one that suits your financial needs and save money on interest.
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