Car title loans are financial aid services offered by numerous financing companies. To be able to obtain such a loan, you are expected to put your car’s title up as collateral. In return however, it is possible to qualify for larger amounts of money and longer terms than a payday loan. It is possible to apply for these loans online or from a physical loan office in your area.
How Car Title Loans Work
The equity of your car determines the amount of money you could get in a car title loan. These are same day loans that attract an interest rate higher than most of the other loan types. You are required to make an application for the loan as you would with any other kind of loan.
Car title loan facilities expect you to provide employment information or at least some kind of proof of income as part of the information collected when applying for the loan. However, because they are near-instant loans, the lender does not get to verify the information provided, since your car’s title is your collateral.
Once approved, the lender will hold on to the car’s title until you manage to pay off the whole amount. The amount of money you qualify for depends on the car’s value. Therefore, car title loans are ideal for people with poor credit scores.
You may be eligible for a loan that is between 25% and 50% of the value of your car. If you are lucky, you may qualify for an even higher loan amount. Photos of the vehicle may be taken as a way of ensuring its condition.
Car title loans are only approved for people who already own their cars or own some equity in it. Vehicles with a lien against them cannot be accepted as collateral. This is because access to the title is complicated in this case.
Benefits of Car Title Loans
Credit Checks Often Do Not Determine Eligibility
The good thing about title loans is that your credit does not matter. They do still run checks, but usually only to see if you have any recent bankruptcy or are presently in the process of receiving credit counseling. Eligibility is usually determined by ability to pay back a loan and vehicle equity.
Quick access to cash
If you are in need of fast cash, car title loans are often one of the very few options available in the market. The money is often provided to the loan applicant the same day they apply for it if they are approved. Other loans take days or weeks before they are approved.
What You Need to Consider When Taking a Car Title Loan
The Interest Rate
Because private institutions give car title loans, and few regulations govern the amount they can ask for in terms of payback percentages. Therefore, take your take to choose between different car title loan shops in your area before settling for one.
Ensure you get the best interest rate and value for your car. Remember that the loan is often issued for the first 30 days with an option of renewal if you are unable to pay back within the 30 days.
Ability to Pay Off the Loan
It is best to be realistic about the amount you want and your ability to pay it back within 30 days. Come up with a budget that will ensure you pay off the loan within the agreed-upon time. Falling behind will only attract a higher interest rate. Remember falling very far behind can cost you your car.
Applying for a Car Title Loan
You can either apply online or from a physical shop. Part of the paperwork includes producing your ID as well as proof that your car is insured. Also, you will be required to provide the original car title as proof of car ownership.
Once approved for the loan, ensure you go through all the details before signing. Always read the fine print. You can still choose not to accept the loan even after it is approved. It does not become official until you sign the contract.
Before signing, go through the terms of the loan to ensure that you know exactly what is expected of you once you collect the money. Ensure that the APR is the same as what the lender promised. While there may be a legitimate reason behind a higher APR on paper, it is always good to verify.
Take any add-on expenses into consideration before agreeing on them as part of the deal.
Repaying Your Loan
In many cases (but not all), car title loans are short term. If you are unable to pay it off, it is rolled over into the new month with additional interest. You will be required to pay the interest amount each month until you can pay off the initial amount.