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Another way for people to get emergency cash is a car title loan. This involves the borrower using their car as collateral for the loan. This is not an option for everyone, and any potential borrower needs to understand the risks involved, as well as exactly 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 other refer to simply as a title loan, is a short term loan product in which the borrower provides the title to their car as collateral for the loan itself. Lenders offer these loans on a short-term basis to customers, and 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. So the interest rate charged can be equivalent to payday loans.
Another big risk is that if you apply for a loan and accept the conditions of it, and when the loan is due if you can’t repay the loan, 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. In addition, if they do roll the loan over this will generally lead to a dangerous cycle for the consumer of borrowing and 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 car title loan lender to repossess your auto if the person can’t repay the loan, or can no longer extend it.
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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. Maybe the borrower can borrow some money for a car title loan lender, and the borrower is certain they will be receiving funds in a short period of time that they can use to repay the loan. So the loan can be used to address 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 some of money.
Lending standards are usually much more lenient for a title loan versus a bank loan, or credit card account. So a potential borrower can borrow money against their automobile title even if they have poor, bad, or less than perfect credit scores and ratings. Lenders will usually not consider someone credit score when they decide whether or not to approve an application.
Lenders will not usually perform a credit check. So the customer will not get the hit to their credit 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 not profitable and too risky.
The process is very quick, and 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 on loan amounts as little as $100 and that amount can range up to several thousand dollars.
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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 loan that is worth up to 50% of the car'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. The borrower will need to hold clear title to the car. And 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, and 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, and be sure that the pros of this product offset those risks before you apply for or use a car title loan.
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