Title loans can help you get the cash you need fast, especially for borrowers who have no or bad credit. This type of loan works by using your car (or any other vehicle) title as collateral for your loan amount. Lenders usually offer title loans to borrowers to help them cover emergencies or other short-term expenses.
Knowing Title Loans
Title loans are similar to payday loans. It’s considered a short-term loan, with only a few or no credit requirements. However, unlike unsecured payday loans, title loans are secured by your vehicle’s title.
It’s vital to know that approval of title loans for a car depends on a variety of factors. These include the lender, the value of your vehicle, as well as the place you live. You might be able to borrow $100 to $10,000, or even more.
If you take out a title loan, the lender will hold on to your car’s title until you have fully paid the total loan amount. Although this type of loan requires you to pledge collateral to secure your intended loan amount, it can still be more costly than other alternatives. In fact, several states in the US don’t even permit title loans.
How Title Loans Work
If you plan to get a title loan, starting your application process is a piece of cake. You can choose to file an application at a lender’s store or online. The loan amounts tend to range from 25 to 50% of your car’s value, and you’ll need to have the vehicle title in your hands.
To complete your title loan application process, you’ll be required to present your vehicle, a photo ID, a clean title, and proof of insurance. Not only that, but you might also need to bring an extra set of car keys.
Some states in the US require title loan lenders to run a credit check. However, most states don’t do such a thing. They don’t even check your income to make sure you can repay your debt. Once you get your application approved, you’ll get the loan amount and the lender will keep your vehicle title until you can fully pay the loan.
Taking out a title loan doesn’t mean you have to leave your vehicle with the lender. You can continue to drive it during your repayment process, which tends to last for about 15 to 30 days. When making payments, it’s possible to do it in person or online.
If you fail to repay the loan by any chance, the lender can repossess your vehicle and sell it to get the amount you failed to pay. This can severely impact your personal finance. If a lender does this, some states mandate that the lender give you back the difference between the sale price amount and the debt you owe. However, other states permit the lender to get all the proceeds.
Pros and Cons of Title Loans
The following are the benefits and drawbacks of taking out a title loan:
Pros
No Credit Check
As mentioned earlier, most title loan lenders don’t run a credit check. This makes sense if you need to borrow money and don’t have a good credit status that can help you qualify for a traditional loan.
Quick Approval and Access to Funds
This type of loan tends to have a fast approval process since it doesn’t require any credit check. It typically takes a few minutes for the lenders to assess your vehicle and loan application. Once you get approved, you’ll then receive the funds immediately or after a few days.
Cons
Potential Debt Trap
Most borrowers who take out a title loan tend to end up in a debt cycle. They continue to get new loans to repay the old loan and do the same over and over again. It can be really harmful to your finances.
Short Repayment Terms
Title loans tend to have a repayment process that can run from 15 to 30 days. This is shorter compared to traditional loans that can range from 6 months to 3 years, depending on the loan amount you want to borrow. The typical title loan repayment period may not give you enough time to repay the amount you borrowed.
You Could Lose Assets
Taking out a car title loan can place you in a terrible position. If you fail to repay, the lender might repossess your vehicle and sell it. That is why it’s best to stay on top of your payments to avoid horrible consequences.
To Sum It Up
Title loans don’t require any credit check. That is why it’s great for borrowers who don’t have a good credit status and are looking for cash fast. However, it’s important to know that taking out a title loan also has several drawbacks. Hence, it would be better to choose this type of loan only if you have already exhausted all your options to get the money you need.