What is a Title Loan And What is the process?

Title loans are temporary high-interest loan that needs your car to be used as collateral to get funds. If you do not have great credit and require taking out a loan, you could be looking for a lender who will consider your low credit score or lack of credit history. Title loan lenders typically don’t examine your credit score but there are other obstacles that you could encounter.

If you’re considering the Title loans online here’s the information you should be aware of before obtaining one.

What is a title loan?

Title loans are loan that allows borrowers to make use of their vehicle as collateral. Since your car is the security for the loan payment, the lender has the right to take your car away in case you fail to repay the loan on time. Title loans are typically low-interest, short-term loans that are not regulated, which means that even when you’ve got poor credit, however, you’ll still have a chance to be eligible. Sometimes, credit scores and histories aren’t even considered.

How do Title Loans Function?

You could request a loan on your title from an institution that provides one provided you own your car outright and have a lien-free auto title. To apply, you’ll have to provide your lender with proof of ownership of your vehicle and evidence that you own the vehicle (your automobile title) as well as your driver’s license.

If you’re approved, you’ll give the title to your car to secure the loan. While the lender decides on the loan’s terms Title loans generally are characterized by a 30 day period which is similar to cash-back loans. It means that you’ll have to pay a lump-sum repayment at the end of the loan term. You’ll be required to pay the loan amount as well as any interest and charges. The majority of lenders charge monthly fees of 25 percent of the loan which is equivalent to an annual percentage (APR) that is a minimum of 300 percent.

This is when title loans can be an issue. If you fail to repay the loan in time, you could lose your vehicle since its collateral. If you do decide to get an auto title loan, make sure to make your payments on time to not risk losing your property.

What You Can Get With the Title Loan

The amount you can borrow ranges between 25 and 50 percent of the value of the vehicle and the lender will inspect your vehicle to determine its value. Certain loans are as low as $100, while some are greater than $10,000.

When is the best time to get an unsecured Title Loan?

As per the Consumer Financial Protection Bureau (CFPB), 20 percent of car title loans holders are seized from their cars in the event they are unable to pay their loan incomplete. The lenders of car title loans can make the bulk of their revenue from the borrowers who constantly make new loans to pay for the old ones. More than half of all auto title loans are permanent debts and over four in five automobile loans have been reborrowed since the borrowers aren’t able to pay them completely in one payment.

In this regard, you must consider other ways to finance your loan before getting an auto title loan. Alternative payday loans offered by credit unions or personal loans offered by credit cards, online lenders, or borrowing money from your friends or family members are great alternatives than losing your car.

Pros and cons of Title Loans

Before taking out the title loan, you must review your pros and cons. This will help you decide whether it’s the best option for you.

The pros and cons of title loans

  • No credit check: Most title loans don’t require a credit check. This is a great option when you need money, but have exhausted every other alternative that are available, and you don’t have the credit to be eligible for an ordinary loan.
  • Rapid approval and cash access: Because there isn’t a credit check, it takes only just a few moments for the lenders to look over your application as well as your vehicle. Once you’ve been approved, you’ll get funds in a matter of minutes or two days.

Pros and Cons of Title Loans

  • The potential for debt traps: The CFPB estimates that greater than 50% of all auto title loans end up as loans that impose debt on the customers. That means that borrowers have to borrow new loans to pay off the old ones, thereby creating an endless cycle of debt they cannot overcome. It’s dangerous and can keep the borrower in debt for years after the initial loan.
  • Fees and interest that are exorbitant: APRs for title loans could be as high as 300%, thanks to the interest rate, finance charges , and other charges. The costs accumulate, causing your financial obligations even more.
  • Short terms for repayment: Title loans typically have a repayment period of 15 to 30 days. Compare this with traditional loans, which usually have terms for repayment ranging from 6 months to 3 years, based on the amount you’re borrowing. A 15- or 30-day time frame for repayment doesn’t always provide enough time to locate enough money to repay the loan you borrowed in addition to the higher APR.
  • You may lose your property: The title loan on your car can put you in a terrible situation: you could accumulate a massive debt load or even sell your vehicle. Be on top of your bills to avoid the costs that title loans can cause.

Title Loan Alternatives

Nearly every option is probably superior to a title loan. Here are some options to look into if you’re in a bind and need cash.

Payday Loans and Alternative Loans

Payday loans are loans of a small amount that are offered from the federal credit unions (not all credit unions are federal). They’re similar to title loans, but they don’t require collateral. They offer smaller sums but offer better repayment terms. For instance, they allow reasonable monthly installments over several months.

The amount you can borrow is between $200 to $1,000, and the interest rates for federal credit unions are usually limited to 18%. Additionally, they tend to collaborate with those with bad credit to come up with a solution that is best for their situation. You must however be an active member or a member of credit unions to obtain a payday loan.

Personal Loan

Personal loans typically are loans that are not secured that you can get from a credit union, or online lenders. They can be used to pay for almost anything you require and some allow fund withdrawal in the shortest time possible, on the day you’ve been accepted. Even if you have poor credit it is possible to qualify for personal loans.

Personal loans do not charge interest, they typically max at 36% which is considerably lower than the rate of a title loan. But you’ll only be able to get the most expensive rate on the personal loan if you have poor or bad credit. Creditworthy borrowers can be eligible for rates that are less than 10 percent. Additionally, the repayment terms range between two and seven years, which allows you to pay monthly in a way that is affordable until the loan is completely paid off.

Credit Cards

If when you make an application to get the credit card it’s approved to use it up to a specific credit limit that can be used on a need-to-know basis. The requirement is to pay the balance in 30 days. Additionally, you have the option of using your credit limit until you’ve paid it. All balances that are not paid will start to accrue interest, however, credit cards offer less rates of interest than title loans.

If you can pay your balance each month’s installments, you’re borrowing an uninterest-free credit. Certain cards offer zero-interest finance for a long duration, for example, during the beginning 12 months card’s use. Utilizing a deal like this can be a good option to take advantage of cheap financing.

Friends and Family

Ask around to see to see if you could borrow some money to stay clear of falling into a trap of a title loan. Your family members won’t be imposing harsh rates of interest the way payday lenders and title loan firms do. They’re also able to negotiate the repayment plan that’s beneficial for the two of you.

However, the borrowing of money from family members can result in stress, both emotionally and financially, to your relationship. Make sure to be cautious and make a repayment strategy in place to ensure that everyone is pleased with the result.

Steven L. Nielsen