When a title loan is mentioned, people immediately think of its most common form, a car title loan. Contrary to popular belief, a title loan can use any asset as collateral. For example, you can use your house, land, and other types of vehicles like boats or motorcycles.
Title loans became popular for two main reasons. Primarily, because the applicant’s credit rating is not a factor when determining loan qualifications. Secondly, they can be approved much quicker due to their lower application requirements. This makes them perfect for people who need cash as soon as possible and simply can’t spare much time to wait for an approval.
Keep reading our today’s blog post to familiarize yourself with title loans. If you are looking for an ideal solution to your money problems, check out our list of the best title loan companies on the market.
Title Loans 101
We’ll focus on car title loans now, as they are by far the most popular type of title loans.
In order to qualify for a car title loan, you obviously need to own a car title. Note that you must hold a clear title to your vehicle, which means it has to be paid in full without any liens or current financing.
Apart from the lien-free car title, the lender (either online or at a store location) will usually require the following things in order to start the approval process:
- Some form of identification (personal ID, driver’s license…)
- Proof of income
- Personal information (name and other personal data, geographic and email addresses, phone number, phone number at work, etc…)
- Car registration
- Car insurance (not all states require this)
The maximum loan amount is dictated by the price of your vehicle, going up to 25% of that number. You can usually borrow as low as 100$ or go up to 1000$ or more, depending on the value of your car.
Car title loans are short-term loans and you can choose to repay the entire debt in a single payment at the end of the month or on a 2-year installment plan. If you fail to meet the conditions of your loan agreement and can’t repay the debt, you can always roll the debt over and take another loan to refinance the existing one. Note that governments usually limit the number of times you can roll the balance over to prevent perpetual debt. Finally, the lender can repossess the car and sell it at an auction to regain the borrowed funds. Keep in mind that lenders usually do this as a last resort, as repossessing the car takes a lot of time and auction/court costs lower the amount of money the lender is able to recoup.
The Cost Of A Title Loan
Title loans are an attractive option for people with bad credit rating who need some cash immediately. You have should be aware, though, that interest rates may go from 36% up to 300%, depending on your state and the agreed repayment terms. So, title loans are quite costly and should be taken only when absolutely necessary. On the other hand, they are the perfect tool to get some cash to keep you afloat with your rent, bills, groceries or even college tuition.