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What Is a Title Loan?
Title loans are short-term loans with little to no credit requirements, much like payday loans. Title loans, on the other hand, are secured by the title of your vehicle, such as a motorbike.
Here are some of the features of title loans:
- Loan amounts: based on the lender, your location, and the car’s value, you can borrow as little as $100 or as much as $10,000 or more. Typically, you will be able to borrow between $2,500 and $5,000 of your car’s value.
- Requirements: Usually, approval doesn’t require a credit check You may not even need to provide proof of income. Lenders, however, frequently demand that you own your car outright, which means you aren’t paying back your auto loan. Usually, you’ll need to bring in your vehicle (motorcycle or car), a clear title, a photo ID, and proof of insurance when you apply.
- Repayment: The loan must normally be repaid within 15 to 30 days, however some lenders may grant longer terms. You can continue to drive the car during that period, but the lender will keep your title. Some may even request an additional set of keys. The lender has the right to seize and sell your vehicle or motorcycle if you fail to make loan payments on schedule. The lender might not even have to reimburse you for the difference between the loan amount and the auction sale price, depending on where you live.
- Availability: Title loans are prohibited in the majority of states, and in those that do, they are strictly regulated. In certain places, they might not be an option.
How Much Does a Title Loan Cost?
Title loans are typically charged at an interest rate of 5% per month. Although that might not seem like much when compared to some personal loans for bad credit, it results in an annual percentage rate (APR) of 300 percent.
Let’s take an example where you borrow $500 and the loan costs are as follows:
Your total expenses will come to $688 if you repay the loan over a 30-day period. 69, which comes out to an APR of 452. 85%.
If you are unable to make your loan payments on time and choose to roll it over into a new title loan, title loans can become even more costly. Although doing so will help you avoid repossession, it will also add to your debt by charging additional fees and interest.
Disadvantages of a Title Loan
Even though title loans are simple to get, it’s advisable to stay away from them and comparable short-term loans for the following reasons:
- Theyre expensive. Like payday loans, title loans can charge exorbitant APRs. It’s unlikely that a title loan will help you get back on your feet if you’re already having financial difficulties.
- Reborrowing and repossession rates are high. A Consumer Financial Protection Bureau report states that because they are unable to make their loan payments on time, over two-thirds of borrowers who take out title loans take out seven or more loans in a row. Ultimately, 20% of borrowers have their vehicle repossessed for non-payment.
- Lenders can track you and prevent you from driving. Installing a GPS tracking device in your car might be required by certain lenders so they can locate you in the event that you are unable to make loan payments. They might even be able to install a “kill switch” in some states to stop you from starting the car.
In order to minimize the costs and risks involved with title loans, it is advisable to look into other options when you need cash.
Does a Title Loan Affect My Credit Scores?
Generally speaking, a title loan won’t affect your credit scores. First off, when you apply, the majority of title lenders don’t do a credit check. A hard inquiry, as that check is called, usually temporarily lowers your credit score by five points or less.
The Fair Debt Collection Practices Act must be followed by the lender in the event that you default on your title loan. Nevertheless, it will typically seize the car and sell it, so there’s no need to report the delinquency or sell the debt to a collection agency.
However, since title lenders do not notify credit bureaus of your payments, obtaining a title loan will not advance your credit history. If you’re seeking for a way to establish your credit, you should think about more conventional financing choices.
Alternatives to Title Loans
It could seem simple to obtain the money you require with title loans. However, since there are less expensive options, there’s usually no compelling reason to take this path. Here are just a few other options to consider.
A lot of personal loan providers specialize in working with borrowers with poor credit. Therefore, even if your credit history isn’t perfect, you might still be eligible if you’re trying to finance a big purchase, pay for some urgent expenses, or consolidate debt.
Even though some bad-credit personal loans have higher interest rates and shorter payback periods than title loans, they are still far less expensive and don’t include the possibility of losing your car.
Furthermore, certain credit unions might provide secured loans, enabling you to use your car as collateral. You might be able to get a longer repayment term and a far lower interest rate with this option.
Although a security deposit is often required for credit cards with poor credit, this isn’t always the case. It might make sense to shop around and apply for a credit card if you can wait a week or two to receive one in the mail.
Even with poor credit, a lot of retail store credit cards will still be approved, though some may have restrictions on where you can use them.
Credit Card Cash Advance
Up to a certain amount, if you already have a credit card and need cash, you might be able to use it to get an ATM cash advance.
Even though cash advances are more expensive than title loans if repaid quickly—you usually pay an upfront fee, a higher interest rate, and no grace period.
You could receive the help you require without having to deal with exorbitant costs and interest rates if you have a positive relationship with a loved one.
While asking a friend or family member for money can be awkward, your relationship shouldn’t be jeopardized as long as you make a formal agreement and repay the debt on schedule.
Nonprofit and community organizations in your area might be able to assist you with paying for some of your essential costs, like groceries, rent, and utilities. To speak with someone who might be able to provide you with the help you require, dial 211.
Take Steps to Improve Your Credit
Even though it might not help you in your current situation, establishing credit can help you in the future by giving you access to better credit options. To assess your present credit situation and identify opportunities for improvement, start by examining your credit report and score.
After obtaining the information you need, begin addressing the problems that are lowering your credit score. This could entail clearing debt, catching up on past-due accounts, and other things. Additionally, you have the option to check your credit reports for errors. If you discover any, you can dispute them with the credit reporting companies.
Rebuilding your credit may take some time, depending on your circumstances, but even modest efforts now can have a significant impact down the road.
We can match you with loan offers that fit your requirements and budget, whether you’re looking for a car or need to pay for an urgent expense. Start with your FICO® Score for free.
Find loan offers that meet your needs in terms of rates and terms.
FAQ
What is the highest title loan you can get?
In general, title loan lenders allow their clients to borrow money between 5% and 100% of the title’s value. These percentages can be used to calculate how much you can get for a title loan once you know how much your title is worth.
What happens when you use your car as collateral for a loan?
The largest risk of using your car as collateral for an auto equity loan is that your bank or lender may seize your car in order to collect the outstanding balance. Fees might also apply.
What is a title loan and why is it a bad way to borrow money?
If you are the proud owner of your vehicle, car title loans are a practical means of obtaining quick cash. However, because these loans have high borrowing costs and require your car as collateral, they are not risk-free.
Read More :
https://www.experian.com/blogs/ask-experian/how-do-title-loans-work/
https://www.bankrate.com/loans/auto-loans/car-title-loans/