What Is a Title Loan?
Obtaining loans might be difficult for persons with poor credit as lenders base their loans on the borrower’s income, credit history, and other factors. A title loan is a faster alternative that offers money with no credit check.
This way, one has to use an asset as collateral. The asset can be anything that is significantly more valuable than what is requested. However, the most common asset type is a car.
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How a Title Loan Works
Owning a car with a title as proof of ownership is the prerequisite for a title loan (for a car title loan). To verify ownership and determine whether the item is valuable enough to be used as collateral for the amount sought, the lender will inspect the car, the car title, and the driver’s license. If so, the prospective borrower must give the lender a signed copy of the automobile title so that they can keep the title as a guarantee of repayment.
Although the loan terms are set by the lender, title loans typically last between 15 and 30 days. Timely payment is compulsory as one who defaults and is unable to pay back the loan by the due date is likely to lose the vehicle because the lender automatically has ownership of the vehicle. However, to help the defaulter keep the car, the lender has the option to delay possession and negotiate a new arrangement.
Pros of Title Loans
You should be aware of these advantages if you intend to obtain a title loan in the near future.
. No Credit Check
Credit checks are usually done to verify that the borrowed money will be returned as agreed. People with poor credit are thought to be less reliable, so lenders are unlikely to release the money to them. However, obtaining a loan is much simpler when the borrower has collateral that ensures the lender’s money back.
. Quick Approval and Access to Funds
The absence of a credit check greatly reduces the time required to get approval.
Cons of Title Loan
Before rushing to take out a title loan, one must be aware of the risks and challenges involved.
. Exorbitant Interest and Fees
The interest rates on title loans tend to go as high as 25% per month, making it difficult to repay.
. Potential Debt Trap
If a borrower is unable to make payments at the end of the month, the lender may permit interest-only payments. This way, the borrower continues to pay the interest while still owing the principal. And in other cases, they get a loan to repay another. Keeping them in a cycle where they continue to owe.
. Short Repayment Plans
Much like a payday loan, repayment plans usually span about 15-30 days, which is usually not enough time to gather the money and repay.
. You Could Lose Your Assets
Unless you want to keep on paying interest while still owing the capital, you might have to forsake ownership of your car.
Types of Title Loans
While a car title loan is the most common, a title loan is available with a variety of other vehicles and assets.
. Car Title Loan
Every car can be used as collateral inasmuch as it is in good shape and the car title is accurate.
. Motorcycle Title Loan
The 2-wheeled vehicle can also serve as a good asset in acquiring a title loan.
. RV Title Loan
RVs, which stand for recreational vehicles, are larger cars that can be used as lodging. Before using a recreational vehicle as collateral, especially if one lives in it, one should give it some serious thought.
. Loan Consolidation
When one owes more than one loan that is being paid concurrently, a consolidation loan is taken to pay off all the smaller loans at once and then repaid as one loan.
. Gold Program Title Loan
This title loan has to do with the content of a jewellery box. Quality gold would be used as collateral to secure gold program title loans.
Alternatives to Title Loans
Here are some alternatives to consider before taking a high-interest title loan and facing the risk of losing your vehicle:
. Request an Extension From Creditors
You’ll be surprised at how willing creditors are to provide temporary payment extensions if you can clearly and honestly explain your situation. This should be considered long before opting for a title loan.
. Use Your Credit Card
Compared to title loans, credit cards have lower interest rates, making repayment easier. Furthermore, depending on how early you pay, you might not be required to pay any interest at all.
. Negotiate Your Debt
In a situation where one needs a loan to pay off credit card debt, calling the credit card company just might make all the difference, as they can help find a solution or an easier option.
. Apply for an Unsecured Personal Loan
Not only can you borrow up to $35,000 at a cheaper rate, but you also don’t need to put any assets up as collateral.
. Use Your Tax Refund
If you believe you are due for a tax refund and need money to pay a bill or cover a necessity, register your claim right away. This might be the thing that saves you.
How Much Does a Title Loan Cost?
The cost of a title loan greatly depends on the amount borrowed and when payment is made. It can range from just 25% of the loan to 300% if payment is delayed for a year, to the collateral being taken away from the borrower. Generally, title loans left unchecked can worsen the situation for which they were obtained.
Does a Title Loan Affect My Credit Score?
Title loans often do not affect your credit reports. On the plus side, credit checks that lower credit ratings are no longer necessary because of this. This seems great until you realize that it also doesn’t raise credit ratings. A solution that genuinely enables you to raise your credit rating can be preferred if you are currently having trouble with poor credit.