When you find yourself in an emergency and you need money to cover unexpected expenses, you can consider a title loan. This is a short-term and high-interest loan that requires you to use your car as collateral in order to access the money you need.
The lenders for this kind of loan usually do not prioritize the borrower’s credit history. However, each lender has different rules, so you must do some research before applying for this loan. Here are 6 important things to know before applying for a title loan.
1. You Must Have a Car
To be eligible for a title loan, you must be a titleholder to the car that will be used as collateral to secure your credit. You should bring the title with your car, recreational vehicle, motorcycle, or truck when you apply for a loan. The car title must have your name, and all other details you provide should correspond if you want to qualify for the loan.
Your car should have equity and no liens or huge debt on it. If the vehicle still has a large sum of outstanding debt, you cannot use it as collateral. The value of your car also determines the amount of money you qualify for. Some lenders may not approve loans secured by cars with little value since the borrowers can simply get the money and disappear.
Other lenders consider factors like the make, model, and condition of the car to determine the loan amount you can get. A lender can only approve a loan that is less than the market value of your automobile. Your current income is another factor taken into consideration when determining the loan amount you can access.
2. Understand the Terms of the Loan
It is a good idea to deal with a financial broker when applying for a title loan. Financial intermediaries at Titlelo explain that varying title loans come with different terms and conditions that every borrower should know. Working with an intermediary who deals directly with lenders is a good idea since they will help you secure loans with relatively low-interest rates. Experienced brokers can assist you in the entire loan application process which helps eliminate oversight or missteps. More importantly, an expert will explain everything you need to know about title loans and pair you with an appropriate lender.
3. Short Repayment Terms
A title loan has a short repayment period of between 15 and 30 days. On the other hand, traditional loans have repayment terms of between six months and three years. Therefore, you must only apply for this kind of loan when you really need money urgently, and you should use it wisely. A 30-day repayment period does not give you sufficient time to look for money to repay your loan plus interest.
If you default on your loan repayment, you are likely to face penalties, and you can end up falling into a cycle of debt. Once your auto title becomes a burden, you will be forced to continue taking out credit to repay the old ones and this will make it difficult for you to get out of this trap. You should make an informed decision before you apply for this loan.
4. Good Credit Score Not a Requirement
A low credit score is not an issue when you apply for a title loan. Most lenders do not check your credit history since the loan will be secured by your vehicle. As observed earlier, the lender will use the equity of your car to determine the loan amount you can get. Therefore, your credit score does not affect your eligibility for a title loan. The main reason for this is that this loan is secured by collateral.
If you fail to repay your loan, the lender is entitled to repossess the car being put up as collateral to recover their money. This means you can end up losing your valuable car over unpaid credit, so you should be careful when you apply for this kind of loan.
5. You can use Your Vehicle
The lender first evaluates your car and provides a credit based on its value. Most lenders don’t keep your car and they allow you to retain possession so you may continue using it as you typically would. Since title loans come with short repayment terms, there will be no need for the lender to hold your vehicle. However, you can lose the car if you fail to repay your loan within the specified period, so you should ensure that at the time of taking the loan you are fully aware of how you plan to repay it.
6. A Car Loan often Comes With High Fees and Interest Rates
A car title loan comes with high fees and interest rates since the borrowers are assuming a high degree of risk. The average annual percentage rate (APR) for this type of loan can be around 300%, and it will have other charges like application fees. The monthly interest rate for a title loan is around 25% which means for $1,000 borrowed, the lender repays $1,250. This kind of interest rate is exorbitant considering that the loan has a short repayment period of just 15 to 30 days depending on your agreement with the lender.
While you may enjoy having access to quick money, you should know that when the charges of the loan add up, they can hurt your financial situation in the long run. You should try to obtain a title loan only when you are faced with an emergency.
At some point in time, we all find ourselves in situations that require us to get quick money. If you want to secure the cash you need quickly, you can consider a car title loan. This type of credit is rather easy to get, and it requires you to use your car as collateral. However, a car title loan comes with high interest and other fees. Therefore, you should understand the terms of the agreement before you sign it.