Know What You're Getting With A Car Title Loan
It can be a good source for quick cash with minimum hassle for those who own a car outright
. Having the documentation required can speed up an already-fast process so that you get your loan in the shortest time possible.
All lending weighs the risk the lender faces in giving you money. The higher the risk, the higher the interest rate. Similarly, the higher the risk, the more stringent the requirements to qualify for the loan.
Loans secured by valuable property lower risk so that a loan can be less expensive or easier to obtain or both. With a car title loan, you can qualify quickly and easily because you are pledging your paid-for car as security.
Be aware, car title loans are typically a last resort and are for those who might have trouble qualifying for a traditional bank or credit union loan because of poor credit history or not enough income.
The effective interest rate, therefore, is high on a car title loan. Car title loan amounts range from as little as $100 to thousands of dollars. Many states set limits on how much you can borrow against your car, but you can likely borrow up to $4,000 in most states, more in others.
The industry average interest rate for a car title loan is 25 percent per month of the amount borrowed. Rate information is misleading to many borrowers before they borrow.
Lenders may refuse to discuss the rate or might show the rate as part of miscellaneous fees, such as an extended insurance policy on the vehicle. So they can be better than payday loans if you need more money, because payday loans typically only offer up to $1,500. Of course, regardless of state limits, you can borrow only an amount justified by the value of your vehicle.
Speaking of vehicle value, the first requirement for a car title loan is a car you own outright. You will be expected to surrender the title to the lender when you are approved for your loan.
Loan eligibility and amount may take into account a vehicle inspection. Most lenders accept old and heavily used cars for a loan but require cars to be in running condition.
Remember, your vehicle is the security for the loan, so if you default, the lender will have the title and can take the car. You will also need to provide a spare set of keys.
Again, no one wants you to default on the loan. The lender does not want your car. Neither does the lender want to be forced to get a locksmith to get in your car if repossession is required.
And, of course, the lender will want to see and inspect your car, match your title to it and be assured of its condition and value. Expect to show a valid driver's license when applying for a car title loan.
You will also need to show proof of insurance. The larger your loan amount, the more comprehensive your coverage will need to be. As an example, one car title lender requires full coverage for loan amounts above $1,500.
You should bring a current utility bill as well to verify your address. And, finally, bring a lease if you are renting your home or your title or loan documentation if buying a home.
Bring your previous two pay stubs when applying for a car title loan. If self-employed, bring your last two years' tax returns. The majority of title loan companies ask for the phone numbers of relatives or friends.
Lenders call these references if the borrower defaults on the loan. Inability to pay the loan back within 30 days can prove to be quite expensive. Some borrowers are forced to extend the loan payback period another 30 days, resulting in additional fees and more interest.
A loan at an interest rate of 25 percent now doubles to 50 percent. Even if the auto is repossessed, the company can sue the borrower for the fees and interest still due to the lending company.
If you borrow only a few hundred dollars for an auto title loan and default, you can still have your car repossessed and not see any return for the profit that the lender made when it sold your vehicle.
by: Jack Landry
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