Loan agreements are of many types, and their terms are different. Some are simple word-of-mouth agreements between relatives and friends, while others are more complicated agreements with lenders. You can borrow money from a lending institution when you need to pay for something significant such as a vehicle, home or college education. Some lending institutions offer payday or personal loans for emergencies or other non-essential items. You may need money to buy an essential item or to take care of other expenses. In that case, you need to know what is involved when applying for a loan.
How Loans Work
To apply for a loan, you first need to know how you will use the money. You can find loans for a wide range of financial needs. Some of the loans you may apply for include car loans, mortgage loans, payday advances, and personal loans. The terms and conditions of each kind of loan differ. They set limits on the interest, loan term, and payment due dates.
Many loan options are available, including closed-ended, open-ended, unsecured and secured loans. By knowing the way loans work, you can choose the one that is ideal for you. Open-ended loans are the loans that you may borrow repeatedly. Examples of such loans are lines of credit, such as credit cards. Closed-ended loans, on the other hand, will grant you a specific balance which will not renew after you have repaid them.
A secured loan requires the borrower to provide an asset as collateral. One of the best examples of a secured loan is the car title loan. If you fail to repay the secured loan, the lending institution can take possession of the car’s title. If you apply for an unsecured loan, you do not need to provide collateral, but the interest rate will be higher. You also have to pay the fees that may be outlined in the loan contract. Monthly fees can be expensive. With some of these loans, you may have to pay up to 25 percent of the amount you have borrowed as interest every month. Before applying for a loan, find out about the annual percentage rate (APR) the lender charges. The APR will tell you how much interest you will pay for one year.
How Car Title Loans Work
Since you now know how loans work, you may be asking yourself how do title loans work? Let us look at how car title loans work. Lending institutions issue auto title loans for a specific amount of money on a short term basis. To obtain such a loan, you need to provide the lender with the title of your car, motorcycle or truck. The lender will charge you a fee and give you a month to repay the loan.
To borrow money against your car, you need to have some equity in the vehicle. Most lenders will require you to have paid the other loans you may have used to buy the car. However, some lenders will allow you to borrow even if you are still paying off a conventional car purchase loan. The amount you can borrow will be based on the car’s value and the equity you have in it. You can borrow more money if your car is more valuable, but do not expect to get a car title loan that is equal to the value of your vehicle.
Lending institutions prefer lending only the amount they can get back easily and quickly if they have to repossess and sell the car. Most lending institutions offer a loan for between 25 and 50 percent of the value of a vehicle. They can also choose to install a GPS tracking device on the vehicle to protect themselves from borrowers who may hide it and fail to pay off the loan.
Paying The Car Title Loan
Title loans are usually due within 15 to 30 days. Therefore, you have to come up with the funds to repay your loan completely, which is not often easy. In some cases, you may roll over the loan to extend repayment. Instead of repaying the loan, you get a new 30-day loan. Nevertheless, rolling over a loan is costly since you need to pay new fees each time you do it.
Losing Your Vehicle
One of the most significant issues with vehicle title loans is that you risk losing your car. If you are unable to make the payments, the lending institution can take possession of the vehicle, sell it and retain its share of the money, which may be the total amount for which the car sold. If the lender repossesses your vehicle, your quality of life will be affected. It will be harder for you and your family to carry out everyday tasks. Therefore, take due diligence before applying for a car title loan.
Car title loans are an ideal option if you need money on a short term basis to take care of different kinds of expenses. You can apply for them after you have tried other options like credit cards, personal loans, and reducing costs. It is vital to plan for how you will pay back the car title loan before taking it so that you will not leave anything to chance.