Car Title Loans: What 5 Things You Need To Know
Photo by JP Valery from Unsplash
Do you need fast cash? Are you looking for money to finance an urgent repair in a real estate property? Is there a medical emergency? In these instances, car title loans might help!
In a nutshell, a car title loan is a type of fast loan that uses a title as collateral. It can go by different names, such as RV title loan, motorcycle title loan, and pink slip loan.
Basically, the loan company can give you money and if you’re unable to pay it within the prescribed time, the interest will accrue over time. Worse, the lender can sell your car or vehicle used as collateral to recoup what you owe them.
At first, it might seem like your savior if you need to borrow money quickly. After all, it will most likely not consider your credit score. However, if you consider the interest rates and the risks, you might have second thoughts. Hence, before you start, read on and find out some of the most important things you must know.
The Benefits Of Car Title Loans
Like when applying for equity loans, business loans, and other types of loans, you must research the good and the bad. Doing so can help you decide if using an auto title as collateral is a great solution to your financial problem or if it can make your problem worse in the long term. Below are some of its advantages.
- Easy To Qualify: Unlike a traditional cash loan from a bank, it might be easier to get approved for a car or motor vehicle title loan. It’s also one of the best loans for bad credit. The lender does not check your credit, which makes the process generally easier than conventional loans.
- Finance Your Different Needs: While medical emergencies are the most common financial needs that make many people apply for title loans, you can use the money for other purposes. For instance, you can use it for renters insurance.
- Convenient Payback Schemes: Aside from fast approvals, you’ll also enjoy easily paying back the loan. You can pay one time or in installments, depending on the terms.
- Use Your Vehicle: Similar to a home equity loan wherein you get to stay in your house, you can keep your vehicle. Only the title is held by the lender.
The Drawbacks Of Car Title Loans
Between paying off student loans, housing, food, leisure, and other expenses, life can be financially draining. Good thing, you have options for raising money almost in an instant when there is an emergency, but not all of them can be as good as they seem to be. Despite the benefits of title loans, it also has shortcomings, including the following:
- Risk of Losing Your Car: While you can still drive your car, RV, or any other vehicle with the title used as collateral, things will change once you are unable to pay the title. Vehicle repossession is common, so be sure to be a responsible payer.
- High-Interest Rates: While it can vary from lender to lender, the annual percentage rate can go up to 300%, which can make the loan more expensive.
- Possible Kill Switch Installation: Some lenders may end up installing a GPS device in a vehicle, also known as a kill switch. This can prevent the motor from starting., which makes it easier for the lender to seize the property or collect the debt.
How Car Title Loans Work (Everything To Know!)
One of the most common title loan FAQs is how it works. Fortunately, it’s straightforward, but you must be diligent to avoid falling into a debt trap.
You will find two common types of car title loans. First, there are single-payment loans. As the name implies, you’ll repay it one time along with the additional charges, such as a month after your title loan application. The second is an installment loan. The applicant repays the loan over predetermined installments, such as every month for six months.
During the application, the lender will appraise your car. This will determine the amount of the loan you can be eligible for. In most cases, you can get anywhere from 25% to 50% of the total value of your vehicle. It can go from as low as $100 to as high as $10,000. Like when shopping for insurance quotes, look for multiple offers so you can find the best deals.
In most cases, initial loan approval will be necessary. Now, you’re probably asking – what is initial loan approval? Simply put, it determines whether or not you can move on with the procedure. For instance, you’ll need to provide documentation about the vehicle that can help the lender assess its condition and market value during this stage.
Once you are approved, the money can be paid in cash or check. Alternatively, the lender can also send it straight to your deposit account, especially if the application was done online.
Like home insurance, car loan, and even mortgage rates, the interest varies from lender to lender. In states with no cap, the loan rates are often at 25% per month. Meaning, if you borrow $1,000 for a one-month loan, you must pay at least $1,250 at the end of the month. Otherwise, you can default on the loan.
Since your car is the collateral, it risks repossession upon defaulting. If you’re unable to pay for the month, the debt will roll over to the next month. It will become higher until it becomes more difficult for you to pay. At such a point, you might leave the lender with no option to take over as you used your vehicle or motorcycle title as collateral.
It must also be noted that the lender might install a GPS tracker to monitor your vehicle’s location, in case they need to repossess it. Plus, they can disable your car remotely with the help of such a device.
Requirements For Application
You can apply online, in person, or even by phone, depending on the lender. Regardless, you’ll need to meet certain requirements. While a credit check is often unnecessary, the company can ask for certain documents.
One of the most common title loan requirements is the title, which will prove your ownership of the vehicle to submit as collateral. A recent pay stub, proof of residency, and proof of car insurance are also required. Many lenders will require auto insurance so they can quickly verify the coverage that you have. Some of the most common types of car insurance you might need include comprehensive, collision, and liability coverage.
Aside from the title, proof of vehicle registration might also be required. However, do not confuse title loans with registration loans. The latter use only the registration of the vehicle as the collateral.
Meanwhile, proof of income may be required because it can help the lender gauge one’s ability to pay. Your compensation may impact the fate of your loan application.
For more information, check out the website of the lender. Make sure to check the accessibility statement and advertiser disclosure parts as well to know more about the website. Although, of course, the most important to look at would be information related to the loan itself.
Alternatives Worth Considering
If you are looking for the best alternatives to auto title loans, below are some options worth considering:
- Loan Refinance: Auto refinance means you can take a new loan in place of your current auto loan. You will find auto loan calculators online to see the refinance rates. It works pretty much the same concept as a student loan refinance.
- Private Party Lender: You might also want to consider borrowing money from a private loan lender, such as a family or friend. If you’re lucky, they won’t even charge interest.
- Credit Union Loans: Applying for a personal loan from credit unions can also help you raise the money you need. Some of them can offer lower interest rates than auto title loans.
- Credit Card Limit Increase: Aside from taking a personal loan, another potential alternative is to call your bank and ask them to increase the limit of your credit card. In turn, you can use such cash advances in your line of credit to finance your urgent needs. Having a high limit is also good because you can do a balance transfer from other cards to simplify your debts.
- Borrow Against Your Life Insurance: If you have enough cash value in your life insurance, you can also borrow against it, so you’ll have extra cash. The amount you can borrow will depend on the insurance company and the terms of your policy.
- Use Money From Your Retirement Fund: If you have retirement mutual funds, Roth IRA, or similar investment, you can use money from such if you need emergency cash instead of taking out loans with high-interest rates.
- Debt Counseling: This will not exactly give you the money you need. However, working with a debt counselor or financial advisor may help you come up with the right strategies, including debt consolidation. You’ll make better financial decisions in the future and improve your personal finance. Even better, such experts can help in your retirement planning.
Photo by Emil Kalibradov from Unsplash
Do you need instant cash? Is your savings account depleted? Vehicle title loans can help raise the money that you need. This quick title loan guide talked about some of the most important things you need to know. While it can help, it can also bury you in debt, and worse, make you lose your car! The loan amounts can vary, so do your research. Ask for multiple quotes to find out the best offers and lowest interest rates.
So, if you need loans with fast approvals, apply for a title loan but be wary of the consequences. Like when paying student loans and other types of loans, interest accrues the longer you don’t pay it. So, make sure to pay your dues on time.
Sage is a freelance writer with a background in information technology.