If there comes a time when you’re out of cash and can’t afford to cover your expenses, borrowing money might just be your best option. If your friends and family are simply not able to help you out or your credit score is bad, you should not panic because you can get access to easy cash by using the title of your vehicle as collateral for a loan. These are the so called title loans.
What is a title loan?
Title loans are secured loans in which the borrower submits his vehicle title in exchange for a loan. Once the borrower repays the loan and all the fees that go along with it, the borrower gets his vehicle back. If the borrower is not able to repay, he faces the repossession of his vehicle which may be auctioned to pay for the outstanding loan. Title loans are short-term loans and so it’s no surprise they have hefty interest rates. Most lending companies don’t consider the borrower’s credit history. What matters the most are the vehicle type and its condition at the time of lending.
How do they work?
With title loans you are using your vehicle’s title as a guarantee, for which the lender allows you to borrow a certain amount of money depending on the value of your vehicle. As soon as the loan is repaid, you get your car title back, if however, you fail to pay off the loan, the ownership of your car goes to the lender.
It’s important to note that you can still drive your car and use it while its title is used as collateral just as you would normally do for the period of the loan. The lender will, however, keep the title until he gets his money with interest paid off.
Title loans are in most parts loans for a small or medium amount of money as it is deemed that offering a big loan is not profitable and has proven to be risky for the title companies. Title loans can range between 20 and 30% of the value of the vehicle. There are cases where the percentage could be higher but that is uncommon. The borrowing process is quite simple and takes just about a couple of minutes. Also worth mentioning is that title loans aren’t limited only to cars, one can also use the titles of other vehicles such as motorcycles, SUVs, and motorhomes as collateral.
Who can qualify for a title loan?
Since title loans are based on the equity you have accumulated for your car, title loan companies will need you to be the owner of your car. You can, however, still qualify even if your car is not fully paid yet, there must be enough equity in it to do that, some lending companies are willing to work with you you even if your car’s title is under a loan from another lending company. Loan lenders understand that the situation of each borrower is different so you need to discuss your situation with them in order to get a loan best suited for you. Some other requirements you have to fulfill include minimum age, proof of where you live and income amount.
How can I repay my title loan?
Usually there are three different options for repayment. You could repay in person, online or use an automated system. The latter means that you should authorize the loan company to periodically take certain amounts straight out of your bank account. It is impossible for the lending company to make these automated repayments unless you have personally authorized them to do so. Unless you have done that it will be a violation of the law.
What will happen you can’t pay?
The process is quite simple – If you are not able repay the loan within the time given, the loan then can default and the lending company will get full ownership of your vehicle.
You can, however, still try negotiating with the lending company if you don’t think you’ll be able to make the payment on time. They might make some lengthen the duration of the loan, but doing so will mean a higher interest rate for you. Others may recommend you to rollover the balance to a different loan, but that will lead to a new set of processing costs, administrative fees and likely, as well as a higher interest rate.
Remember, lenders are always more keen on getting their money back than getting your car and selling it, that is why they are usually willing to discuss different alternatives with you.
Car title loan alternatives?
Like with any type of loan, it’s always good to evaluate your alternatives. Compare the penalties and interest rates of title loans with other types of loans that may be available to you, such as:
If you need money right away, make sure to compare the rate of a car title loan with that on your credit cards. If the limit of your credit card is not high enough to cover what you need, you can call your credit card company and ask them for a higher limit on your card.
Emergency work loans
See if your company has an emergency loan program that helps employees with short-term financial problems. Programs differ from one employer to another, but the loan you’ll get may be interest-free or at least have a low-interest rate set by your employer.
Extension of payments
If you plan on taking out a loan because of an unexpected situation see if you can get a payment extension. A month long payment extension on your utility bill or a seven-day extension on your rent could really spare you the troubles of getting a title loan.
Although payday loans can also charge very high-interest rates, you won’t end up losing your car if you break your contract through late or non-payment.
Banks usually give personal loans with lower interest rates compared to car title loans, but there’s a good chance they still won’t be better than your credit card rates. The positive of taking personal loan from a bank is that you can pay it back in a scheduled time frames..