If you are considering taking out a loan, you might wonder what your options are in terms of short-term collateral loans. Perhaps the most popular type of short-term collateral loan is the car title loan, and there is good reason.
If you are facing a financial crisis, trying to find a way to pay for a medical emergency, need extra cash fast to complete a small business purchase, or simply looking for a way to make ends meet, car title loans can be a fantastic resource.
So, what are car title loans and why should you get one? Continue reading to find out.
Car title loans are a kind of short-term, secured personal loan. That means that instead of being tied to your credit score, they are tied to something of value that you already own. Car title loans can be a great resource and help to people who are struggling with bad credit because most title lenders do not even check your credit score to decide whether or not you qualify for a loan. This is one of the primary reasons why you should consider getting a car title loan. If you struggle with bad or no credit, getting approved for a traditional bank loan, or even an online personal loan can be quite hard. How can unsecured lenders be confident that you will be able to to pay back your loan if you have no history of paying back loans? It can be something of a catch-22, but title lenders do not force you to deal with that burden.
What they do check, however, is whether or not you own a vehicle outright and possess a lien-free title on that vehicle.
The value of a car title loan is tied to the value of your car and the equity you have in that car. If you own a car that is worth $10,000 and own it outright, you can expect to get a loan worth anywhere between $3,000 and $5,000. You can obtain a minimum loan once approved or opt for the maximum amount to borrow possible. That’s a lot of cash and can go a very long way in helping you cover your financial needs.
The minimum amount a car can be worth in order to qualify for a car title loan is typically $2,500. As you might have gathered from the previous paragraph, you should not expect to get a loan offered that is equal to the total value of your car. In fact, car title loans typically are worth somewhere between 30 percent and 50 percent of the value of the involved car.
If you’re wondering how to find the value of your car title lender, it can be as easy as logging into your computer. This is another reason why car title loans can be a great option. While some types of lenders are still stuck in the past, forcing you to come into their brick and mortar storefront just to begin the application process. With car title loans, you can begin your application, find out if you have been approved, agree to terms of your loan, and get your money all without leaving your home.
On top of that, another reason why you should consider getting a car title loan is because not only are they easy to get, they are incredibly fast. After you apply for a car title loan, either
online or at a store-front office, you can expect to have your cash in hand anywhere between one hour and 24 hours. It can even take less than that if you are prepared with all of your necessary documents.
So, what are the documents you might need? This is another reason why you should consider taking out a car title loan. The list is incredibly short.
In order to take out a car title loan, you can expect to be asked to provide proof of the following:
If you are able to provide all of this to a potential lender, you should be good to go when it comes to getting a car title loan.
The final thing to discuss are some of the drawbacks of car title loans. Let’s start with something we have already discussed, and that’s the value of your loan compared to the value of your car. The reason why car title loans are worth only 30 percent to 50 percent of your car is because lenders need to protect themselves financially in the event that you default on your loan. A default occurs when you fail to pay your loan and at that point, a title loan lender can decide whether or not they want to repossess your car and sell it in order to recoup the losses that came with lending to you. Getting your car repossessed is the worst-case scenario when it comes to title loans, and while you will easily avoid it if you are financially responsible and pay for your loan on time, it is something to keep in mind before taking out a car title loan.
Another thing to keep in mind are the high interest loans. The average interest rate connected to car title loans are 25 percent. That means that if you take out a title loan worth $1000, you will be expected to pay $1250 total in order to close out your loan. If you feel confident that you will be able to pay for that, a car title loan could be a fantastic option. If not, it is probably best for you to get your finances in order before you consider taking out a loan.
In the end, car title loans are a great resource if you are looking for fast and easy cash. While paying the loan back is harder, that is true for all loans. All you have to do is be sure that you are responsible and careful enough financially to take out a loan and pay it back in time.