Cost And Conditions In Title Loan Application

Titles loans are a specific kind of secured loan where the borrowers pledge the ownership

of their vehicles as collateral to be turned over to their creditors in case of default. For this reason, title loans are also commonly referred to as car title loans. There is a small but considerable degree of variation amongst title loans, though not enough because generalities can't be made about them. Most title loans are of short duration, involve small sums of money, and are repaid all at once at the end of their loan terms using one-time payments.

In contrast, there is no real, universally agreed-upon definition for a 'traditional' loan. The closest image that will pop up in most people' minds is something close to a mortgage, a loan where the borrower makes regularly scheduled payments in period after period that go towards paying off both the principal and the interest charged on the principal until the loan has been entirely repaid. Traditional loans see a great deal more variation than title loans - they can be secured or unsecured, involve smaller or higher sums of money, and come with many different loan conditions absent in title loans.

Ease and Availability

Title loans are almost always easier to secure than traditional loans. Borrowers only need to provide proof of income and their ownership of the vehicle to be used as collateral to secure a title loan in contrast to the much more extensive documentation required for more traditional loans. Since their application process is so simple, the approval process for title loans is also significantly shorter than the same for traditional loans, meaning that title loan borrowers can access the money that much faster.

Similarly, title loans are also much more widely available than traditional loans. Credit ratings based on the customers' credit histories play an important role when it comes to determining what traditional loans they can receive and under what conditions. In contrast, title loan lenders ignore credit ratings entirely. In effect, this means that even people with bad credit ratings and uncertain finances can qualify for title loans when they likely cannot do the same for traditional loans.

Cost and Other Loan Conditions

Since title loans are so widely available, title loan lenders also charge much higher interest rates than traditional loans to compensate themselves for the increased risk of default. Converted to effective annual rates, title loans can charge up to somewhere between 36% to 100% interest rates. Similarly, the repayment policies of title loans tend to be harsher than those of traditional loans, being less forgiving and being due all at once.

The other notable quality of title loans is the collateralization of vehicle titles. While traditional loans also use collateral, all title loans use collateral and all of them use vehicle titles as collateral. Combined with their high interest rates and unforgiving repayment policies, this means that title loan borrowers face the very real risk of losing their vehicles, more so than traditional borrowers.

by: John Smithes

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