If you’re short on cash and you have bad credit or can’t afford a rejection, title loans are a fantastic choice. They’re a quick, easy way to get money. However, not all types of title loans are equal. The definition of a title loan has become problematic over the past few years due to the predatory practices of some providers.
Do you need fast cash? Sure, a title loan can be the right move to get the money you need. But much like any loan, you need to educate yourself first before getting into it. Here’s a complete guide that covers everything you need to know.
What is a title loan? What is a car title loan? We’ll answer all these questions and more. This will demystify title loans for you.
What is A Title Loan?
Before we delve into specifics, we need to understand what a title loan is. 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 is a car title loan, which requires borrowers to use their vehicle as collateral. Almost every lender refers to this type of loan when asked for their definition of a title loan.
These loan types are usually short-term, running up to 30 days. This makes them almost similar to payday loans, and even those with bad credit can avail of the service. In most situations, your credit history and credit score are never put into consideration due to the availability of collateral.
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. The application process itself is short, usually taking somewhere between half an hour to an hour at most.
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 two crucial documents. These are:
- 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 it can offer you. The usual value that you can get for this loan is around 25 to 50% of the vehicle’s worth. The newer the vehicle you have, the higher the amount that you can get.
Much like the definition of a car title loan, you would need to leave your title with the lender upon loan approval. Loan terms usually run around 30 days, but some providers give 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 it can go lower or higher depending on your loan type.
How Much Does A Car Title Loan Give?
Now that we know what a car title loan is, the bigger question is how much can you get for it? As we said, 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 $1000. This only means that your vehicle’s value should start somewhere at around $4000 to get a 25% loan value. Some loans go for as much as $5000 to even $10000. Some title loans even give higher amounts 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 title loans only take a little time for them to be approved. Your lender would only likely need time to verify your documents and appraise your vehicle for the amount you need.
Unlike personal loans, there’s very little chance for a loan denial 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 loan if you have zero credit history and you need some money in a pinch.
In situations where a bank won’t give you a personal loan, title loans are your best choice. You would only need to make sure that you aim to protect yourself throughout the loan duration.
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 do 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. These numbers make it crucial for you to borrow only as much as you can pay and the length that is comfortable.
Discuss with your lender the details of your title loan, which includes the fees and expenses you need to expect. The faster you can pay off your loan, the better situation you’ll be in. If you can, do your best to not roll over your loan to the next month, as you put your car at risk of repossession.
This 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.
If there’s a chance, check with your lender if they can renegotiate the terms of your loan. 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.
Your last chance is to get your car title loan refinanced. If your credit has improved since the start of your title loan, you can try to request refinancing. If possible, avoid any potential debt settlement as it can damage your credit score even further.
The Bottom Line of Title Loans
Title loans are an invaluable service that is useful for those who need quick, sure cash. Knowing what a title loan is and the details around it can make everything easier for you. If it’s your last remaining choice for cash, compare across several lenders for the best APR.
Work with the right financial organization. Find a team that can guide you towards the right decisions with your loan.
If you’re looking for more information about title loans, contact us now and find out exactly what you qualify for and what the best options are for you.