A title loan is a way to use the equity in your car to borrow money quickly. Title loans can be a great option for immediate funding that serve as a short term solution for many vehicle owners. For others, they can be a rushed decision resulting in excessive interest charges.
Sometimes these charges can exceed the value of the car, and in worse cases title loans can result in losing the vehicle. So, how do we figure out whether or not a title loan is worth it?
How to determine if a Title Loan is Worth it
As with all of our articles, we recommend determining if a title loan is worth it based on your specific situation. Each individual will have different reasons for getting the loan. Additionally, title loans have pros and cons.
Different situations will result in different benefits received from the loan proceeds. The costs of the loan should be the same for all borrowers, depending on the lenders chosen.
Additionally, some people make excellent candidates for title loans, others do not. The vehicle, and more specifically the vehicle’s value, is also a major factor.
If you are new to title loans, it is worth learning how to decide what makes a good candidate. Once you decide that you are a good candidate, you can move on to answer the topic question.
If you are considering a title loan for any reason, you may be asking yourself “Are Title Loans Worth It?”. The truth is, there is no simple answer to this question. Whether or not a title loan is worth it largely depends on two main factors:
- The cost of the title loan, and
- The benefit you receive from the loan.
To find out if a title loan is a good choice, you will need to perform a simple cost benefit analysis of the cost of title loan versus the benefit you will receive.
Are Title Loans Worth It Factor 1 – Cost of the Loan:
Car title loan costs can, and do, vary widely, much more so than just about any other type of loan. Some of the higher interest rate loans, like those charged by some of the largest lenders, are probably not worth it unless you receive a significant benefit that can outweigh the excessive costs that often accompany these loans.
We posted a detailed title loan costs guide that goes over how much title loans costs with several examples.
This will give you a better idea of what title loans costs to help figure out if they are worth it. As a general rule, if the loan costs more than double what you borrowed, it is likely too expensive.
And, many title loans cost much more than double, and some even five or six times the original principal. Find a better alternative to these lenders.
Title Loan Cost Example 1:
On the high end of the interest rate spectrum is an example of a 25% per month title loan. For a $2,000 loan, it can cost almost $6,000 to repay. In this case, the loan is most likely not worth it. In fact, most people would wonder why someone would agree to terms like that in the first place.
Title Loan Cost Example 2:
A Title Loan with Fast Title Lenders costs 8% per month. The same $2,000 loan from the previous example would cost less than $3,200 to repay; a fraction of the $6,000. In this case the title loan has a much better chance of being worth it.
Are Title Loans Worth It – Factor 2 – Benefit
The other key factor to determine are title loans worth it is the actual benefit of getting the loan and the specific effect. This will vary based on the specifics of your situation.
This will largely depend on the reason for the loan, and how getting the loan will solve a problem. The actual benefits of getting a title loan, with specific effects, can include:
Covering an Emergency Expense
Many borrowers get title loans to cover an emergency expense. This can be very important to some, and can reduce stress and improve quality of life.
Quantifying this in dollar values is difficult, so it is up to you to determine if the benefit you get from a title loan outweighs the costs. This is obviously much easier with a reasonable title loan with the best rate.
Paying for a Car Repair
Some borrowers get title loans to pay for a vehicle repair. Depending on the specific repair, it may be necessary to continue driving the vehicle.
If the borrower uses the vehicle for work, or is the only transportation to and from work, the benefit of having a working vehicle may outweigh the cost of a title loan. Again, this is much easier to do with a low rate title loan.
Reducing Outstanding Debt
Several customers got title loans to pay down credit card debt. This is a way to use a title loan to increase their credit score prior to making a large purchase.
The higher credit score allowed them to get a lower rate on the much larger, longer, loan. This resulted in a significant cost savings.
Cost-Benefit Analysis
To determine whether or not a title loan is worth it you need to perform a simple cost benefit analysis. We know the cost of the loan from using the car title loan calculator. And, we have any idea of the benefit. The benefit can be subjective, so do your best to quantify it in terms of dollars.
Then, compare it to the cost of the title loan and make the determination. In some cases, a title loan will be worth it. In some cases, it will not.
Do not let other lenders convince you a title loan is worth it if the cost outweighs the benefit. Always make this decision based on your best judgement.
Online Title Loan Considerations
Today more consumers are turning to online title loans. This has some considerations when compared to an in-person title loan. The first is time. Some online title loans are fast, others can take some time. The faster options are often called instant online title loans.
The second consideration is whether or not you can get an online title loan with no inspection. Some require a visit to an inspector, some do not. If you don’t mind having your vehicle appraised in person it may result in a more accurate valuation.
Conclusion
These are only a few examples, there are many more reasons why people consider title loans. It is important, if you are considering a title loan, to perform a simple cost benefit analysis to determine if a title loan is worth it. In some cases, yes, and in some cases, no.
There is no simple yes or no answer for everyone. If the benefit you will gain from the title loan outweighs the cost, then yes, title loans are worth it. One the other hand, the opposite is true. One thing is for sure, if you are considering a title loan you will want to find a lender with the lowest costs.