What is a Car Title Loan? – A car title loan is a way to borrow money using the equity in your vehicle as collateral.
Title Loans are generally simple loans where you pledge your vehicle to secure the loan, and the lender bases the amount you can borrow on the vehicle’s value.
There are two main types of title loans:
- Single payment title loans and
- Monthly Installment title loans.
Single payment loans are for very short terms (usually 30 days) with the full amount, plus interest and fees, due at the end of the loan term. Monthly installment loans have monthly payments and range from a few months to a couple of years.
Title Loans are Secured Loans
A title loan is a secured loan using the vehicle as collateral. This means if you default on your loan you may lose your vehicle. This is similar to a regular car loan; if you stop making payments on a car you financed it will likely be repossessed.
No Credit Check Title Loans
Title Loans are secured by the vehicle. As a result, most lenders do not require a credit check. This means title loans do not affect your credit score. It also means you can get approved for and funded for a title loan regardless of your credit history (good, bad, or non existent).
Single Payment Title Loans
Single payment title loans are similar in some ways to Payday loans. You borrow an amount from the lender and agree to repay the full amount, plus interest and fees, by the due date.
These are usually very short term loans, with the most common term 30 days. Single payment title loans are usually for smaller loan amounts given the fact that the full amount is due within 30 days.
Title Loan Rollovers
The full amount of a single payment title loan is due within 30 days, and many customers are unable to repay this amount in such a short period of time. Most lenders allow the borrower to “rollover” the loan for another 30 days. To do so, the borrower must pay the interest and fees due.
Rolling over the loan can cause the costs of the title loan to quickly and significantly add up. Also, the principal is still owed, so even though the borrow made payment(s) the full amount is still due. Learn why roll overs are not a great idea.
Monthly Installment Title Loans
Monthly term title loans are loans that are amortized over the loan period. This means the loan is broken into equal monthly payments with both principal and interest paid each month.
This makes the loan easier to repay and ensures that the principal balance is reduced each month. These loans can still be expensive, especially if the interest rate is very high.
What do I need to get a Title Loan?
In most states getting a title loan is fairly easy. You will need to meet the lender’s requirements for a title loan. Generally, these will include at least the following, in addition to a vehicle obviously:
- Lien free Title
- Valid Drivers License
- Proof of Insurance
Some lenders have additional requirements which can include:
- Proof of Address
- Proof of Income
- List of References
- Vehicle Spare key
Not all lenders have these additional requirements, so it is important to check with your lender to make sure you have the right paperwork to obtain the loan.
Why do Title Loans exist?
Car prices have risen considerably over the past few decades and for many people they have a significant amount of equity in their vehicle after they have repaid the original vehicle loan.
Additionally, the number of households with enough savings for an emergency has decreased during the same period that vehicle prices have risen. So, for many people, being able to access the equity in their vehicle for emergency expenses is a worthwhile benefit.
What do Title Loans really Cost?
Car Title Loan costs can vary significantly from state to state and lender to lender. Many lenders prefer to keep their interest rates, fees, and actual costs difficult to figure out.
Car title loan costs will start to increase if you make late payments and roll over a fixed term loan. You will want to find a lender with a reasonable rate and make sure to borrow only what you are sure you can repay.
A sure way to end up with a bigger problem is to take out a 30 day loan with no means of repaying it. Additionally, extending a monthly payment title loan too long can result in excessive costs.
Do Online Title Loans have more Requirements?
Online title loans do require more from the borrower to obtain the loan. These additional requirements include those mentioned above in addition to employment information, additional references, and vehicle pictures.
Again, requirements differ from lender to lender so it is important to check with your lender to find out their requirements.
How much Cash will a Title Loan give me?
The amount you can borrow with a title loan depends on several factors. This first is the vehicle. Your vehicle must have enough equity in it to be able to support the loan. Not sure what your vehicle is worth?
You can look up the value using KBB. The next factor that will determine how much you can borrow is your ability to make the loan payments. You will need to have income to support the loan. And, finally, the state you live in may limit the amount you can borrow.
How do I get the best deal on a Title Loan?
To get the best deal on a title loan we recommend a few things and discuss this in detail for online title loans. First, find a lender that does not charge very high rates. They do exist, it just may take some research.
Next, get several quotes from lenders and go with the best one. When you get to the lender read the entire loan agreement and ask questions if you don’t understand something.
Some lenders choose to complicate their loan agreements and bury clauses that are not in favor of the borrower with hidden fees. If you are reading the loan agreement and something doesn’t seem right ask the question.
If the answer doesn’t make sense walk away and find another lender. Remember, you can lose your car if the loan goes bad. Do not go through with it unless you are 100% comfortable with the terms.
Conlcusion
A Title Loan is a secured loan that provides fast cash based on the value of your vehicle. Title Loans are usually short term loans, ranging from a few months to a couple years. There are two main types of car title loans, single payment loans and monthly installment loans. Title loans are generally more expensive than other forms of credit and should be used only when absolutely necessary.