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10 things you need to know about title loans
Sometimes, you meet with unexpected financial obligations that send you looking to borrow money. Most types of loan are secured which means you have to put up property to qualify for the loan.
Title loans are an example of secured loans. An auto title loan is a secured type of loan where borrowers use the title of their vehicle as collateral to get a loan. Auto title loans provide you a fast and affordable way to borrow cash using your vehicle. The following are certain aspects of title loans you need to know when deciding if they are a better option for you and your financial situation.
They have secured
Secured loans are loans that expect you to put up your property as collateral before you can get the loan. This collateral acts as a guarantee for the lender that you will repay your outstanding debts on time. In the event that you default repayments, the lender has the legal go-ahead to sell the property to recover the outstanding debt.
You are expected to put up your vehicle as collateral for auto title loans. If you are unable to pay your loans within the agreed time frame, the lender can repossess your vehicle and sell it to pay himself.
They are short term
It takes a very short time to have title loans processed equally the repayment schedule of car title loans is expected to be made within a short period. Car title loans have a short maturity period compared to other long-term loans.
No credit checks
Most individuals who have been in debt before often have poor credit scores. This is because, in the process of borrowing, they might have delayed in making repayments or defaulted altogether. People with poor credit scores may feel disadvantaged when approaching traditional forms of borrowing. That is because they perform credit checks on borrowers before extending credit. Potential lenders distance themselves from borrowers with a low credit score with the assumption that if they had once defaulted in making repayments, they could do it again.
Auto title loans seek to help borrowers who are turned away by other lenders due to poor credit scores. With title loan lenders, they are concerned about the collateral you put up for borrowing and not quite your credit rating.
High- interest rates
Lenders tend to impose high- interest rates on a loan if it is unsecured. In an unsecured loan, the lender faces the risk of losing his money if the borrower defaults repayment and there is no property to repossess as the loan does not require the borrower to put up collateral.
Though car title loans are unsecured loans, high- interest rates that may be over 100% APR still apply. Lenders claim that the high- interest rates are due to the fact that they extend loans to people who are already facing financial difficulties.
The loan a borrower can get in car title loans depends on the worth of the vehicle. The lender generally looks at the vehicle being used as collateral and estimates the amount it would fetch if it were to be auctioned. Then, the lender offers a loan that is between 30%-45% of the vehicle’s worth. In the event that the borrower is unable to make repayments, then the lender enjoy much profit that accrues from auctioning the vehicle. It is imperative to have a basic understanding on how to calculate these loans to avoid a scenario where the lender may extend you a loan that does not match the worth of your vehicle.
Eligibility of title loans
Title loans, like any other forms of borrowing, require borrowers to meet certain criteria before they qualify for the loan. The basic requirement is that the borrower is expected to be 18 years or older.
A car title loan requires the borrower to put up his vehicle as collateral. The ownership of a car is a prerequisite for getting a car title loan. Car title loans may be applied at a store or online. When filling out an application form for an online car title loan, lenders require you to specify details such as your Vehicle Identification Number and other Insurance Policy Numbers. The model of the car is also important. Upon approval, the borrower is required to visit a store to pick up their money usually in the form of a check.
Risk of losing the car
When taking out a car title loan, you need to be sure of being able to repay the loan within the agreed time frame. You have used your vehicle as collateral and that means in the event that you default in making repayment, the lender has the legal right to repossess your vehicle and sell it to recover your outstanding debt. In the long run, you would have lost both the money and the vehicle.
Read the loan agreement carefully
It is a common mistake with many borrowers who are desperately in need of money that they do not thoroughly read through the terms and conditions of the loan. They just skim through the pages in the haste. Thorough scrutiny of the loan agreement saves you from falling into a debt trap. To be on the safe side, you should check the interest rate and other fees of the loan and also evaluate whether or not the loan terms work for you.
Differences between a car title loan and a car purchase loan
Many people may get lost in the similarity of names. They are totally different. A car purchase loan is a loan taken out by a person who wants to buy a car while a car title loan is a loan taken out by a person who already owns a car and is willing to put it up as collateral.
Compare other lending options
People who are going through financial difficulties may approach any form of borrowing in a desperate attempt to meet their pressing financial needs. However, it is important to consider other borrowing alternatives. For instance, you may decide to forego a loan with high- interest rates and approach one with favorable rates and other loan terms.