Another way for people to get emergency cash is a car title loan. This involves the borrower using their car as collateral. This is not an option for everyone, and any potential borrower needs to understand the risks involved. As if they do not, it can be very easy to have your car or truck seized by the lender. Find information below on how an auto title loan works. Get information on the pros and cons of this product, understand how lenders deal with and approve potential borrowers, and find details on how to apply.
The concept is simple enough. A car title loan, which many lenders and others refer to simply as a title loan, is a short term financing product offered by a number of financial institutions. To use this source of funding, the borrower provides the title to their car as collateral for the loan itself. This may sound risky, and in fact it is.
Lenders offer these loans on a short-term basis to customers of all income levels. In fact, they often focus on providing them to individuals with a poor credit score or that have no bank or checking account. However a car title loan will almost always carry a higher interest rate than other sources of credit. So while in reality the concept is simple enough, as you can probably tell it does come with some inherent risks.
If you are not careful, there are many. First and foremost, they are expensive. Depending on the state or lender in which you apply to, the APR can range from the low 20% up to a couple hundred percent. While in some states it may be slightly less expensive than say a payday loan, it is not an inexpensive form of financing. Be sure to shop around as well, as some companies will set the interest rate equivalent to or even higher than payday loans that may be available in that state.
Another big risk is that if you apply for a title loan you can have your car repossessed. While this is not common, it does happen to thousands of people every year. If someone applies to a lender, and accepts the conditions, and when the loan is due if you can’t repay it, then the borrower has one of only two options available to them. The first is that they could decide to roll over the loan over for another month or so, and if they choose this option they will incur additional costs in the form of higher fees and/or interest rate. There may also be one time transaction costs involved in that process.
In addition, if they do roll the loan over this will generally lead to a dangerous cycle for the consumer of borrowing. It is commonly called a payday, or predatory lending “trap”. Many people that do this end up rolling over the loan amount multiple times, and eventually they get so far behind they have no other choice but to give up their car. Which basically leads to the second option for a borrower, and that is for the lender to repossess your auto or truck if the person can’t repay the loan or if they can no longer afford to extend it.
For those borrowers that need help in paying an existing car title loan off, they can get assistance with this from a number of places. There are state programs that can help, credit counseling agencies, and methods that can consolidate these debts into a more affordable payment. There are even non-profits that can provide the family a new car. Find a listing of programs that offer help with car title loans.
So while they are expensive, especially if not used properly, there are some reasons to consider using an auto title loan if you are careful and smart about it. They can be a quick source of cash to use in an emergency or if the borrower is having short term cash flow issues. But all other sources of funding, as well as charity programs, should be contacted before applying.
Maybe the borrower can apply for some money from a car title loan lender and the individual is certain they will be receiving funds in a short period of time that they can use to repay the loan. But they need to be absolutely confident of their ability to pay it off. So in these cases the loan can be used to address very short term cash flow, or timing issues.
Another positive is that some lenders can provide as much as $50,000, and of course this is provided the vehicle's wholesale value is worth that much. While it would be very unlikely for an applicant to need that much money, it is possible to borrow a large sum.
Lending standards are usually much more lenient for a title loan versus a bank loan or credit card account. So a potential borrower can take out money against their automobile title even if they have poor, bad, or less than perfect credit scores and ratings. This allows more people to consider this form of financing.
The banks and other lenders will usually not consider someone’s credit score when they decide whether or not to approve an application. So companies will even provide the money to an applicant with no credit scores to their name. This can be helpful to an immigrant or younger person. However this does not mean that someone with poor credit should rely on this type of financing. Instead what they should really be focused on is repairing their credit scores and ratings.
The process can be expedited too. Lenders will not usually perform a credit check. This speeds up the application for a title loan, and also allows more people to apply. So the customer will not get the hit to their report that can occur when a business runs a check. Most other financial institutions will not loan under $1000 to someone without any credit as they deem these types of transaction not profitable and too risky.
The process is good for solving emergencies as it can be very quick. After applying the borrower can get approved and access to the cash in a short period of time. Most car title loans can be both applied for, approved, and acquired in 15 minutes or less. But this will depend on how much is requested too. The short time frame is usually applicable on loan amounts as little as $100 and that amount can range up to several thousand dollars.
The exact terms will depend on the state in which you live and apply in, the lender, and the condition and value of your automobile. Typical car title loan lenders will offer the borrower a dollar amount that is worth up to 50% of the car's or truck’s resale value. So this means that if the automobile is worth $15,000, then someone can borrow up to $7,5000.
However, the maximum loan value will vary based upon the lender and their exact underwriting process. The borrower will need to hold clear title to the car. While the details of that condition may also vary by state, in general it will mean that the car that is being used as collateral must have no current financing and/or be paid for in full.
So the bottom line is that a title loan can be a quick source of emergency cash for an individual. But there are some risks involved. For those that think this will work for them, the borrowers can use the money to pay bills or really for whatever reason they want to. However, before applying for a car title loan, be aware of the cons and risks involved. Namely that someone may lose the title and ownership of their automobile. Also the interest rates can be very high. So be sure that the pros of this product offset those risks before you apply for or use a car title loan.