If you’re short on cash, have bad credit, or want to avoid a loan rejection, title loans are an excellent option. They’re a quick, easy way to get money. However, not all types of title loans are equal. The meaning of title loans has become contentious over the past few years due to the predatory practices of some providers.
However, if you need fast cash, a title loan can be the best move to get the funds you need. But just like any loan, it’s essential to familiarize yourself with the concept and process before getting into it.
What is the definition of a title loan? What about a car title loan? Here’s a complete guide that covers everything you need to know.
What is A Title Loan?
Before we delve into specifics, let’s dive into the definition of a title loan. A title loan is a type of secured loan that allows borrowers to use their assets as collateral. In general, any item that has a deed of ownership/title can be used to secure a loan.
One of the most common types of title loans is a car title loan, which requires borrowers to use their vehicle as collateral. Almost every lender refers to this type of loan when explaining the definition of a title loan.
These loan types are usually short-term, typically running up to 30 days. This makes them almost similar to payday loans, enabling even individuals with bad credit to access the service. In most situations, your credit score and credit history are not taken into account because of the availability of collateral.
The application process itself is short, usually taking somewhere between half an hour to an hour at most. Note that your car’s title will stay with the lender until you pay in full, with some lenders even installing GPS devices to prevent borrowers from hiding the vehicle.
How Does A Car Title Loan Work?
Much like any loan, you would need to apply for car title loans with a lender that offers one. It’s crucial that you own your car and have a lien-free car title. Together with the application form, you would need to provide the following documents:
- – Any valid ID, usually your driver’s license
- – Proof of ownership/car title
During the application, the lender will determine the value of the car to see how much you can get for a car title loan. Then, upon loan approval, you would need to surrender your title to the lender. Loan terms usually run around 30 days, but some providers offer longer loan periods. This allows for a much lower interest rate and more time for the borrower to pay back the loan amount.
At the end of your loan period, you would need to pay for the entire lump sum value of your loan, including interest rates. Interest value goes up to as much as 25% per month, but this can go lower or higher depending on your loan type.
How Much Do You Get for a Car Title Loan?
Now that we know the definition of a car title loan, the bigger question is how much you can get for it. The value of the loan goes somewhere between 25 to 50% of the value of your vehicle. More valuable vehicles can get higher loan amounts, especially top-of-the-line models in almost perfect condition.
You can get as little as $100 for the loan, but the average amount starts at around $1,000. This means that your vehicle must be worth at least $4,000 for you to qualify for a loan equal to 25% of its value. Some loans go for as much as $5,000 to even $10,000, with some title loan providers offering higher sums for more expensive vehicles.
Understanding the Many Benefits of Title Loans
The biggest benefit of a car title loan is the speed and efficiency of the loan application itself. Most car title loan applications tend to be relatively quick and can often be completed within a matter of hours. In many cases, you can receive approval and funding on the same day you apply, making them a popular choice for individuals seeking immediate financial assistance.
Unlike personal loans, there’s very little chance of a loan rejection due to the lack of credit score checks. Since these types of loans don’t use your credit score as the basis for approval, you can get your loan application approved even with bad credit. It’s also a great option if you have zero credit history and you need some money in a pinch.
When traditional banks decline a personal loan, title loans present a viable alternative. Just be sure to protect yourself from the potential drawbacks of these loans, such as short repayment terms and high-interest rates.
How Can You Avoid Problems With Your Title Loans?
Over the years, the definition of title loans has become synonymous with risky and expensive. It’s hard to deny that many have fallen victim to paying absurd amounts for their car title loans. However, it doesn’t have to be that way. The key to a hassle-free loan experience is knowing what to do.
For starters, it’s best to get a loan that is within your capacity to pay. The average annual percentage rate (APR) for title loans goes at 300%, at 25% per month. Given these figures, it is critical to borrow only as much as you can comfortably repay while factoring in manageable loan terms.
Discuss with your lender the details of your title loan, which includes the fees and expenses you should expect. The faster you can pay off your loan, the better situation you’ll be in. If you can, do your best to avoid rolling over your loan to the next month, as this puts your car at risk of repossession.
A title loan is most worth its value when you pay it as early as you can. You want to prevent the loan from building up more interest and stacking on itself.
When possible, check with your lender about renegotiating loan terms. It never hurts to ask, even if you have very little chance to negotiate. Ask for something that fits your budget and get it in writing.
If you’ve seen an improvement in your credit since initially taking out your car title loan, it might be a good time to explore refinancing. Refinancing your car title loan involves replacing your existing loan with a new one that comes with better terms, potentially including a lower interest rate and more favorable repayment terms.
The Bottom Line of Title Loans
Title loans are an invaluable service that is useful for those who need quick, sure cash. Knowing the definition of a title loan and the details around it can make everything easier for you. If it’s your last alternative for cash, compare across several lenders for the best APR.
Work with the right financial organization. Find a team that can guide you toward the right decisions with your loan.
If you’re looking for more information about title loans, contact us now and find out the best options available to you.