There are many times in your life when you may need cash but don’t have the funds in your bank account. You may need money to pay for college tuition, home improvements, car repairs or a vacation. A car title loan can get you the cash needed, without the long application process required by banks and other types of lenders.
There may be other reasons keeping you from obtaining a loan from a traditional lender. Perhaps your credit score is bad, or since you haven’t had a chance to build up your credit score yet. A car title loan works a bit differently than a regular loan.
A car title lender will not take a look at your credit history when approving your loan. Instead, your loan is secured against the value of your vehicle. After your loan has been approved, you will receive your cash. You then pay back the loan to a payment plan, plus interest. Failure to pay back the loan means that you forfeit the title to your vehicle. However, most people are able to pay back their car title loans to deadline, so it can be a good way to finance your purpose. A car title loan will also have no bearing on your credit report.
To begin the car title loan process, you fill out an form if you’re applying online. The lending company will then determine the value of your vehicle.
The value of your vehicle will be based on wholesale prices. The lender will then give you a loan based on what they believe your vehicle is worth. They will hold the title of the vehicle until you have paid off the loan in full. At this point, the car’s title returns to you.
This type of loan is different than the car financing loan you obtained when you purchased the car. This type of loan is meant to be short-term. It’s a lot like a pawn shop type of loan where you hand over the item to get your loan, and pay it back over a set payment schedule. If you fail to pay the loan back, the lending company keeps the item, in this case the vehicle. Basically, you’ll have sold your vehicle to the lending company by default.
In order to qualify for the loan, you must own the vehicle outright, and have no other existing loans on it. In other words, the title must be in your own name. If the vehicle’s title is still in the hands of the bank, you won’t be able to use it as collateral for a loan.
To further qualify, you may also be required to be a minimum age, provide proof of residency, and proof of your income.
A car title loan is a good way to quickly pay off finances, or credit card debt that has exorbitantly high interest rates. Car title loans are also a great way to get some quick cash for personal purposes.
Updated January 13, 2018
However, car title loans are not for everyone. When used incorrectly, title loans can bury borrowers into further debt. According to Titlelo Title Loans, a title loan company in Ft. Lauderdale Florida, auto title loans are one of the most misused and misunderstood forms of lending. It is important for borrowers to familiarize themselves with how these short-term loans work. Although title loans are a source of financial relief, they must be repaid within 2 months before they become a financial burden. Overall, title loans are controversial lending products that have the potential to be a viable lifeline to subprime borrowers who use them responsibly.