Not everything goes to plan. Anything good can happen tomorrow and anything bad could too. That’s just the way life works. You cannot change your credit score overnight, neither can you prevent something that has to happen. But you can learn more about your options and how to not worsen your situation – smart planning is all about damage limitation.
Anything that can go wrong, will go wrong
What is a Title Loan?
Simply put, a title loan is a loan where the borrower uses their vehicle as collateral to secure a loan. The borrower hands over the title or paperwork that gives the lender complete ownership of the car until the loan is repaid, While the loan is being paid, the lender is allowed to use the car as their own. However, if the loan isn’t repaid according to the repayment agreements, the lender has the right to repossess your vehicle and sell it at a profit. Title loans are commonly called auto title loans or car title loans.
The characteristics that differentiate title loans from other loans is that
- Lenders rarely take into account your credit score while giving out loans
- The entire process is relatively fast and painless
- Work great for small amounts and can be used for amounts as small as $2,500.
What Do You Need To Get a Title Loan?
Different lenders have different processes for giving out loans, however, the following items are generally required for getting a title loan:
- A government-issued ID (driver’s license or passport)
- Proof of Residency
- The contact information of references
- Your own vehicle
Extra emphasis on “own” because the vehicle must belong to you outright. That rules out the possibilities of a previous loan that was taken out with the same vehicle used as collateral. You should also not be sharing the ownership with any third-party. The lender will almost always ask for a lien-free car title which means that the car is completely paid off.
How the loan is calculated?
Unlike other types of loans, your credit score or rating does not affect the amount of your loan. The only limiting factor here is the value of your vehicle.
The lender will appraise your vehicle by, generally inspecting the car in person, taking into account the year of purchase, how many miles it has, overall condition, etc. The lender wants to know how much the vehicle can be sold for.
Once that amount is finalized, the lender generally offers 25% or sometimes 50% of the value of the vehicle as the loan amount.
Sometimes your credit history, income, and the economy can affect the value of the car.
Taking Out a Loan
Thankfully, the loan process is fast and sometimes you can get your money within a day. This is especially helpful if you’re facing a medical emergency.
The process involves bringing your vehicle, a lien-free car title, other documents mentioned above to your lender and signing a contract after agreeing to the terms and conditions.
Generally, the contract includes information like:
- The amount borrowed
- Value of the car
- Interest rate charged
- Other financial charges (processing fees)
- Repayment date
Depending on the lender, there could be even more details.
Be sure to read the conditions and double-check the details of the contract to avoid any problems or legal complications.
Repaying The Loan
Once your vehicle is appraised and you’re eligible for a car title loan, you will have to agree to the terms of the loan. These terms include how you’re going to repay the loan. Most loans are usually small amounts of less than $1,000 and more often than not, lenders will give you 30-days to repay the loan. Also, it’s not uncommon for the repayment to last only 15 days in some cases.
However, there may be other options as well. Check with your lender to see if you have the option of paying the loan over a longer period. Depending on the loan amount and car, the lender may agree to a 1-year repayment scheme or even a 2-year repayment scheme.
Either way, you’ll have to pay interest on the title loan which is generally charged every month. Sometimes, the lender may levy a small albeit additional processing fee.
If you’re wondering what a 1-year repayment scheme will look like, take a look at this example.
Say you are able to get a title loan of $1,200 against your vehicle and the lender agrees to a repayment scheme of 1-year. The interest charged is 25 percent. This means that over the course of 12 months, you’ll be paying the lender $125 every month. By the end of the repayment scheme, you would’ve paid a total of $1,500, in which $1,200 is the principle and $300 is the interest.
What Happens When You Can’t Repay Your Title Loan?
Taking a title loan against your car as collateral means that if you’re unable to meet the repayment requirements, you will lose your car. The lender can use the lien-free car title to legally claim your vehicle.
The amount of the loan taken out doesn’t affect the repossession and sale of your vehicle. If you stop making payments, the lender will repossess your car, sell it at the maximum price possible and keep the entire revenue for himself.
Not All States offer Car Title Loans
If not used responsibly, a title loan can create problems instead of solving them, that’s why some states have prohibited car title loans. Others have put strict regulations on title loans.
Certain states have made it illegal for lenders to charge over 36% APR while others are in the process of outright banning them.
Another thing to keep in mind is that certain states have laws that limit the number of times you can take out a title loan. This is to prevent consumers from rolling over. Rolling over means taking a loan to pay off another loan. Since this can lead to a debt spiral, many states have outlawed the practice.
Make sure to check your state’s laws and regulations before getting your hopes up because the laws decide whether or not you can get a title loan.
Why Should You Take Out a Title Loan?
While there is no shortage of ways to take credit in today’s modern society, there is a reason behind the increasing popularity of title loans. It’s their convenience. You don’t have to worry about qualifying for a loan as having your vehicle as collateral means you do not need a good credit score (most lenders won’t even check your credit score). You also do not have to worry about whether or not you’ll get cash in time or as most lenders can complete the applications and documentation within a day – you’ll walk out with cash in hand.
Title loans ensure you can maintain your quality of life when problems arise.
When Should You Take Out A Title Loan?
Financial hardships don’t knock. While there are many options for taking out a loan, there is none that is as fast and easy as taking out a title loan. It makes sense for you to take out a title loan when:
- You need cash as fast as possible.
- You cannot pawn your vehicle as you need it for day-to-day tasks.
- You have a stable income so you know can pay off the loan in time.
- Your credit rating leaves title loans as the only option.
Other Things To Remember
One fear that many borrowers have is that they might lose their care. We understand that fear. However, you’ll be happy to know that only a small percentage of people actually ever lose their vehicle.
In fact, a lot of the lenders have options to provide additional loans you don’t have to put a full-stop on your work. On top of that, certain lenders also have options where you can just pay the interest every month until you’re able to pay back the principal amount.
While evaluating the lenders, don’t just look at the amount of loan they are offering or the total amount of you have to repay. Make sure you know how much you’ll end up paying and the breakdown of the total amount. Don’t miss the fine print and don’t be afraid to ask questions.
Most importantly, the entire premise behind title loans is that you’re confident in your ability to repay the loans. It’s your moral obligation to ensure that you can pay the loan before taking out one.
If you’d like to learn more about title loans, you can check our website.