Car Title Loans

If you have tried to secure traditional loans from banks, but you were denied, then taking title loans can be an easier and faster alternative. Title loans can be easily secured if you own a car, and the current value of the car is about four times more than the amount you want to borrow. Different states in the U.S also have various regulations on when talking about title loans. You will do well to find out what your state laws on title loans specify.

In this post, we explore all you need to know about title loans.

What are car title loans?

Title loans, which can also be regarded as car title loans, is a type of secured loan that enables borrowers to use his or her vehicle or car title as collateral. A vehicle title is also called Certificate of Title or Pink Slip. It is legal proof that an individual or business owns and operates a car. In the U.S, vehicle titles are issued by the Secretary of State in each state where the vehicle is purchased through the Department of Motor Vehicles. 

As a precondition for securing car title loans, the borrower must give the lender his/her vehicle title hard copy. This will be held temporarily by the lender until the loan has been fully paid. Where the borrower is unable to repay the loan fully, the lender can repossess the car and then sell it to offset the borrower’s debt.

Even the best title loans are noted for their high-interest rates. You may be surprised to find some lenders taking as high as 300% APR. Usually, online title loans are meant to be paid in a month. The problem of having to pay higher interest rates begin when borrowers decide to pay in monthly installments. For instance, a title loan of $500 at 300% will mean paying back $625 in one month. That is paying $125 on a $500 loan in a month!

Take another example of a $5000 title loan at 108% APR to be repaid in 24 months installments. The borrower will pay back a total of $12,394. This means the interest on the principal is $7,394.

Most title loan/money lenders do not require the borrower’s credit history. However, some lenders may insist on the borrower’s credit rating if the loan amount is relatively high. You can expect title loan lenders to give from $100 to $20,000. The value of the vehicle often determines the amount of cash a borrower can take. Some companies can give online title loans up to the worth of the borrower’s vehicle. Most title loan lenders give a maximum of about 60% the value of the car as a loan.

What to consider if you must apply for a title loan?

Before taking a title loan, you must consider the following:

• The urgency of need: Owing to the high-interest rates of title loans, you may need to reconsider if your need is urgent enough to make you want a title loan. As a rule, it is not advisable to use title loans to upgrade one’s lifestyle.
• Amount needed: If your need is so urgent and you must borrow a title loan, you need to determine how much. Remember, the more you borrow, the more interest you are likely to pay.
• Other sources of credit: After considering the two points above, you may find that there are better alternatives to car title loans with lower interest rates. Go for these alternatives. If you succeed at getting credit from the better alternatives, you pay less on interest and may get a more flexible repayment plan. If you are still stuck with the title loan being your only option, you can strategize to see how you can cope with the amount you will be required to pay back.
• Vehicle estimated value: Before determining how much you can borrow, you can also make a rough valuation of your vehicle. Usually, your valuation for your vehicle may be higher than what the lending company estimate might be. Therefore, whatever rough estimates you make, allow for a minimum of 10 percent difference between your valuation and that of the lending company.
• Ability to repay within stipulated time: If you secure the loan, how do you intend to pay back within the time frame? You must settle this so that you don’t end up losing your car in the process. The Consumer Financial Protection Bureau in one of its reports revealed that about 20 percent of people who take single-payment title loans have their cars repossessed. If you want to stand a better odd, you need to organize the resources for payback even before you take the loan.
• Available options in case you couldn’t meet up with payments: Depending on the lender, there can be an option for loan extension if the borrower is not able to pay up as at the time due. Where a borrower is unable to pay back the title loan, some states allow lenders to sell the borrower’s vehicle and take what the borrower owes while what is left is refunded to the borrower. You need to be clear what is stated in-laws if you fail to repay title loans fully when due.

Having considered the above points, you can proceed cautiously to take a well-planned title loan.