Car Title Loans: 6 Things Wise Borrowers Need to Know Before Applying

Car Title Loans: 6 Things Wise Borrowers Need to Know Before Applying

The consumer with a valid car title, uses the title as collateral to secure a loan. The loans range from $100 to $6,000 with some going as high as $40,000 but those are quite rare. These are small loans, taken out over a short period of time.

What makes a car title valid for a loan of this type? Since the loan is using the car title as collateral no other institution or person can have a claim on the title. This means the car must be 100% paid off and no liens appear on the title of the vehicle. Additionally, the car being used has to meet certain requirements. Old cars or cars with extreme mileage on them may not qualify depending on the standards of the lender.

Before applying for a car title loan, the consumer needs to know the following six things.

1. A title loan is a short term loan

Don't get a title loan if you won't be able to pay it back fast. While the interest rate may look low, when spread out over a year, you could end up paying back a lot of money.

2. The title loan business is competitive

Shop around and get the best deal you can. Most title loan companies have online application forms and you aren't obligated to accept the loan after you applied. So shop your vehicle around and see what you can get.

3. Title loans don't require good credit

One of the criticisms levelled at the title loan industry is they target people with bad credit. Here's the truth of it though, people with bad credit have almost no other lending options available to them. Just because they have bad credit doesn't mean they suddenly no longer have a need to borrow money. Yet, they have bad credit and are a risk to lend to. Thus, by using a secured loan, the lender is able to mitigate the risk and the person with bad credit is still able to borrow the money necessary.

The default rates on a title loan are in line with other types of traditional loans. This goes to show that people with bad credit don't always have bad credit because they are untrustworthy but sometimes life is just harsh.

4. Your car is on the line

Just to be clear, when you take out a title loan, you are signing the title of your car over to the lender for the duration of the loan. You keep your car and use it as you would normally, but the 'ownership' of the car has been transferred to the company lending you the money. If you fail to pay your loan back, they will seize your car. Some companies even require you to give them a set of spare keys to make taking possession easier.

5. Beware of penalties

When shopping around for your car title loan, you need to be fully aware some title loan companies put penalties and extra fees on paying the loan off ahead of schedule. They do this to protect the expected income from the loan. This is an unsavory practice and you need to make sure you aren't getting locked into a situation where you have to wait the entire life of the loan to pay it off. Most people take out a title loan when they fall short in a month and need a quick cash loan before their next paycheck. Or they are expecting an insurance payout after experiencing a disaster or emergency but need money now, planning on using the insurance check to pay back the loan.

Don't accept any loan that has penalties attached for paying early. There are way too many options available to you to accept that kind of nonsense.

6. Explore all alternatives

A title loan is expensive money to borrow. Make sure you've gone through all your options. You can read article after article on why you shouldn't get a title loan. These articles all assume the borrower has other options and if you do, then take those options. If you don't, know that thousands of people each month take out a title loan and suffer no ill effects. In fact there are many people who after discovering just how easy it is to get a title loan, continue to use title loans as a financing option.

Ready to Apply for a Title Loan?

After knowing these six things about title loans, you are ready to apply for a title loan. You can use the application on this site to get a no obligation free quote and discover how much you could borrow using your car's title.

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