Car title loans do have several advantages, despite what their competitors may have you believe. There are plenty of articles and posts published regularly about the downside of car title loans. Like most things in life there are both advantages and disadvantages to getting a car title loan. This post will focus on the advantages.
Companies that generate revenue from credit card companies, like Credit Karma for example, and banks, frequently post articles describing the negatives of title loans to dissuade consumers from considering a title loan and try to drive more business to them and their advertisers.
It is a normal marketing tactic, but one you should be aware of if considering a title loan. Check for an advertiser disclaimer at the top of the article to find out whether or not the publisher is being paid by a company like a credit card company.
One common misconception that is often written as fact in many of these articles is that title loans have 300% APR interest rates. While this can be true, in many cases the rate is far lower. These articles won’t state that part.
Making Sense of Online Information
The truth is that title loans are an expensive form of credit, so alternatives should absolutely be considered. Even the best title loans at a discount compared to some lenders can cost significantly more than alternatives.
The other truth is that a large number of consumers use these loans every day to solve short term financial problems. Some of the articles and posts written by title loan competitors are partial truths and exaggerated.
Title loans work differently in every state. Some states have limits on the amount of interest a title lender can charge. A title loan in Florida, for example, works differently than a title loan in California.
In many cases these limits are well below what many of the published material from sites that get their revenue from credit card companies.
Always read the “Advertiser Disclosure” when considering the content of one of these articles.
Fast Cash with No Credit Check
One of the main advantages of any car title loan is the ability to borrow quickly without relying on your credit score. Title loans are secured by the equity in your vehicle.
Therefor the lender is more concerned with how much the vehicle is worth than your credit score. Learn more about how long it takes to get a title loan.
This is a big advantage for those consumers that would not qualify for a high limit credit card that allows a cash advance.
Why Title Loans
There are a few reasons title loans are a sought after method of borrowing. One is vehicle cost has increased substantially over the past couple of decades. Not only do cars cost much more than they used to, but they last much longer than they used to as well.
While 100,000 miles used to be a sign of a vehicle near its end of life, today that is not true. There are plenty of vehicle with two, three, and even more times that number today.
The bottom line is new cars cost much more than they used to and continue to hold value for a longer period of time. After paying off a vehicle this equity can be used to borrow against, if needed, to cover emergency expenses.
Car Title Loan Advantages
Now that we’ve covered why title loans exist and why people use them when needed, let’s talk about some of the advantages that accompany a title loan:
- Borrow Fast
- Keep Driving
- No Pre-payment penalty
- Vehicle value vs Credit score
- Multiple Funding Methods
- Flexible payments
Borrow Quickly
We briefly mentioned this, but a title loan allows you to borrow money, fast, using the equity in your car as collateral. If you visit a lender you can get a title loan in person in as little as 30 minutes.
Keep Driving
Unlike a vehicle pawn, a title loan allows you to continue to drive your vehicle. This means no interruption to transportation. You continue to drive your vehicle just like you would with any other car loan.
No Prepayment Penalty
Most title loans do not have prepayment penalties. This makes it easy to pay the loan in full whenever you are able to. You can also pay more than the minimum due each month to save on interest charges.
Vehicle Value versus Credit Score
The title loan amount is based on vehicle value, not credit score. Unlike a credit card or bank loan, title loan amounts are not based on credit score. Instead they are based in the value of the vehicle.
This is both an advantage as well as a risk. If you default of the loan the lender can repossesses your car. This is why preparation is such an important part of getting any title loan.
Multiple Funding Methods
Car title loans can be funded through various funding methods. These include, among others:
- Direct Deposit
- Check
- Cash
- Debit Card
The fact that you can get your title loan funded choosing the method most convenient to you is an advantage. The type of loan may have an affect on the funding method unless another method is specified. For example, online title loans are often funded by direct deposit.
Flexible Payments
Some, not all, states have amortized title loans with monthly installments. These allow you to pay over time. This is often a much easier option than a single payment due in 30 days.
Flexible Payment Methods
Years ago you had to visit a lender in person and make payments in cash. Today, most title loan companies allow a variety of payments including debit cards.
You can also pay online, just like paying a credit card bill, using your banks online bill pay feature. The fact that you can make payment without leaving your home is a convenience.
Online Options
Today online title loans are more widely available in many states. The ability to get a title loan completely online is a major benefit. Make sure to prepare for the loan, and choose you lender wisely. Online title loan have benefits and risk just like every other loan type.
Summary
Car title loans offer a way to borrow money quickly using the equity in your vehicle as collateral. These loans are often made without a credit check, and are an expensive form of credit when compared to other forms.
For this reason alternatives should always be considered. Despite the fact that car title loans can be expensive, they do have several advantages that make them sought after loans to cover short term funding requirements.