Understanding How Title Loans Work
Title loans are one of the preferred types of loans when one is in need of large sums of money urgently. Although you use your car as collateral if you have trouble with repayment, people find this a far better alternative than losing their business or having to sell their house. This secured loan is short-term with few requirements, making it a lot less complicated than other types. While such a loan carries high-interest rates, credit scores aren’t the be-all-end-all to being qualified. For this reason, these types of deals are the most accessible. Read on to find out more about how title loans work.
How They Work
Title loans are offered to individuals who are the rightful owner of a vehicle. You must have proof of car ownership, a valid license, as well as a lien-free title. Once you are able to present these documents, the agreed-upon loan amount will then be disbursed to you in exchange for your car’s title. Based on the terms of the loan agreement, you’ll have a set amount to pay at a certain date. Typically, car title loans are a lot like payday loans; meaning you’ll have 30 days to pay one lump sum, including interest and fees. The monthly fee required is determined by the lender; most charge about 25% of the total loan amount.
As with any other loan, issues will arise if you fail to make your payments on time. Your asset, in this case, your car, can be used as collateral, therefore, make sure you have a payment plan you can stick to, to avoid losing your vehicle.
Borrowing Funds
To understand what a title loan can do for you, you must first gauge how much money you’d need to borrow. Of course, larger amounts of funding will result in different repayment plans. You want to be sure you can hold up your end of the deal before accepting any loan. Understanding title loans is a lot easier when you have all the relevant information. If you visit website sources that specialize in providing specific information related to this, you will learn how a person can get help regardless of the number of funds they need. Generally, a person can receive a loan that is equivalent to up to 50% of the value of a car. However, your lender will first determine your car’s value and alter the sum of money accordingly. Then, you can negotiate the borrowed funds. Some lenders are happy to offer up to 10 grand while others start off with a limit of $100. Again, this is to be determined during the consultation process.
The Right Time for a Title Loan
Many people either underestimate the importance of taking out a loan at the right time or they simply do not know when the right time actually is. The truth is, there is a financial clock to adhere to, so to speak. This is because many people make the mistake of taking title loans before they instigate a plan that ensures they’ll be capable of repaying the loan, resulting in 20% of borrowers having their cars repossessed. You need to be financially prepared to take out a car title loan, and avoid taking out new loans to repay old ones at all costs. A rule of thumb is to have alternative financing in place, such as family and friends to borrow money from, personal loans, specifically from online lenders, credit union payday loans, and others to avoid having your vehicle seized.
Advantages and Disadvantages of Title Loans
The main advantage of applying for a title loan is that there are no credit checks. People with a bad credit score, who often struggle to meet lenders’ prerequisites, are more than capable of securing a title loan. Moreover, the approval process is quick, meaning you’ll have access to the funds almost instantly. This is especially ideal in the case of a financial emergency.
The downsides don’t vastly differ from the disadvantages of taking out any type of loan, which is why it all depends on your responsibilities. With any loan, you can fall into the debt trap, be charged with exorbitant fees and interest rates, and lose assets. However, it is also worthy of note that with a title loan, you are given shorter than usual repayment terms.
There are definitely more benefits to applying for a title loan when compared to other types, however, you should always do your research and gauge alternative options before coming to a final decision. Alternatives such as credit cards, personal loans, payday loans, among others all have their pros and cons; it just depends on what is the most feasible option for you at this time. If you have friends and family members who can help you stay financially afloat, or at least give you advice, it’s definitely wise to lean on them for support. Last, but by no means least, make sure you also vet your potential lenders to avoid getting into risky situations or making deals with illegitimate entities.