Car Title Loan Basics
The economic conditions of the past few years have caused most financial institutions, such as banks and credit unions, to seriously tighten their lending requirements. Consumers who in the past would have easily qualified for a personal loan or a home-equity line of credit now find themselves unable to meet the more exacting standards needed to borrow from traditional lenders.
This helps to explain the enormous growth that has occurred in the payday advance loan industry. Car title loans are just one example of these short-term loans which are primarily targeted at consumers who have low credit scores and poor credit histories.
In simple terms, a car title loan is a short-term loan which uses your car as collateral. Here are some of the advantages of using a car title loan to get emergency cash funds in a short amount of time:
- Borrower has quick access to cash funds- normally within one day.
- No credit check is required. A car title loan is a secured loan. The approved loan amount is calculated on the value and condition of the actual vehicle.
- Very little paperwork is required.
- The borrower may still use the vehicle while the loan is outstanding. The lender will require that you give them a set of keys to the vehicle along with the car title until the loan is fully repaid.
There are disadvantages to car title loans, also. You should carefully consider these very real risks before committing to a car title loan.
- Rates - Car title loans come with unreasonably high interest rates. In some instances, the APRs can exceed 300%.
- Loss of vehicle - Car title loans require that you offer your vehicle as collateral. This means that if you default on your loan (are unable to repay the loan when it is due) the lender has the legal right to repossess your vehicle and sell it to recover the money which you owe.
- Payments and fees - Lenders frequently charge excessive fees and payment amounts for car title loans.
Use Caution When Considering Car Title Loans
Car title loans are expensive and come with great personal risk. Here are some facts to consider before making a final decision:
- Car title loans are generally given for about 50% of a vehicle's wholesale value.
- Interest rates are extremely high (300%-400% is not uncommon).
- Car title loan lenders target lower-income consumers who have bad credit and poor money-management skills.
- Estimates suggest that one in eight borrowers will end up losing their vehicles because of failure to repay the loan.
- Studies indicate that the average borrower takes out 3-5 loans from a specific car title loan lender. This shows that most borrowers are unable to pay off the original loan amount within the four week repayment period and must take numerous extensions before fully repaying the loan.
Car Title Loan Companies
If you are seriously considering taking out a car title loan to help you get through a tough financial situation, here are some suggestions when looking for lenders:
- Car title loans should be used for emergency financial situations only.
- Always borrow the least amount of money possible.
- Try to negotiate the lowest possible interest rates.
- Look for car title loan companies with high approval ratings from customers.
If You Have Bad Credit
If you are now facing a financial emergency and trying to find extra cash in a hurry, it can be a very stressful experience. If you also have less-than-perfect credit, the situation can be even more unpleasant. Car title loan lenders know that many of their customers have credit problems and cannot qualify for more traditional loans. There is no need for them to run credit checks on potential borrowers because all car title loans require collateral. Lenders know that if a borrower defaults on a loan, they can legally repossess the vehicle and sell it to recover the money which is owed. Car title loan lenders face little risk when approving a car title loan request.
However, the same cannot be said for borrowers. The ultimate risk is that you lose your vehicle. Plus, you will be paying very high interest rates and fees and will have to fully repay the loan in a short amount of time- generally four weeks.
Here is a very brief description of a "typical" $500 car title loan given at 25% (monthly rate) and with a 30 day repayment period.
Including fees such as origination fee ($15), document fee ($5), processing fee ($5) and interest payment in the amount of $125, at the end of the thirty day repayment period, you would owe the principal ($500) plus these other fees and charges for a total amount of $650.
If you had to rollover this loan three times (which is what the average borrower does), your charges after 4 months would be the same fees mentioned above (total $25), the principal amount of $500, and $500 in interest charges. You would be paying $1025 to borrow $500!
Consider the following before making a final decision about a car title loan:
- Investigate other borrowing options.
- Consider your personal circumstances.
- Imagine losing your car. (a real possibility)
- Change your spending habits.
- Borrow wisely.
Getting a Car Title Loan Online
Online car title loan websites all have their own application forms. Here is the basic information which you will need to submit:
- Personal Information - Name, address, contact telephone numbers.
- Vehicle Information - Make, model, mileage, color, and VIN.
- Your Personal Auto Insurance Information - Lenders can require that you increase your coverage amounts while the loan is outstanding.
Next, you need to submit the application. You will also have to provide the title to your vehicle. There cannot be any liens against your car and it must be totally paid off. Borrowers can generally request between $100 and $5000 in cash funds.
The entire process takes about one hour. You will be contacted by the car title loan lender and informed of what you need to do next.