Introduction To The Basics Of Title Loans

Title loans are loans secured using the ownership of vehicles as collateral

. Although this can describe a broad range of loans with a similar range of loan conditions, most title loans are short-term loans that must be repaid in full once their loan terms are up. Title loans are notable for being simple to secure and available even to people with bad credit ratings but also bearing high interest rates and the need for collateral.

Applying For a Title Loan

People who wish to apply for title loans must meet a fairly simple set of requirements. They need either proof of employment or proof of some other kind of income to demonstrate their capability to repay the loans to the title loan lenders. Other than that, they'll also likely need some kind of personal ID plus the title to the vehicle to be used as collateral. This vehicle must be completely paid off and free of liens, meaning that no one other than the would-be borrower can have any claim to the vehicle. Once the would-be borrower submits all of this documentation and fills out the application forms, his or her part is complete.

Approval for title loans are almost always fast, sometimes taking place on the same day as the application.

Managing a Title Loan

Most title loans are for fairly small amounts of money, though higher sums may be available depending on the value of the vehicles put up to secure the loans. Borrowers are charged interest on the title loan principals in much the same manner as other loans throughout the entire length of their loan terms. Most title loan borrowers do not make more than one payment but are instead required to pay both principal and interest once the loans are due, though exceptions to this rule exist. Usually, title loan terms last one month's time.

Loan Resolution

Once their loans are due, title loan borrowers are required to either pay up or default on their loans. If the borrowers pay, the loans are considered complete. In contrast, title loan borrowers who default on their debts can face two different outcomes depending on their creditors, though neither is very pleasant.

Consequences of Failing to Honor a Title Loan

The first possible outcome of defaulting on the title loan is that the lender will act to take the vehicle that was put up as collateral. Once the vehicle has been transferred to the lender's possession, the lender will then sell the vehicle to try to make up some of the loss from the defaulted on loan after waiting a legally mandated period during which the borrower can recover the vehicle by paying off the debt. In general, title loan lenders do not like this option both because the seizure process is costly and because the sales of the vehicle will not cover all of their losses.

The other option is that the lender will let the borrower roll the borrowed amount into a new loan with a new loan term. Not all lenders will let borrowers do this, and laws exist to limit the number of times that this can be done.

by: John Smithes

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