subject: Will A Car Title Loan Work For You? [print this page] A car title loan is one such loan that you can get with no credit check and minimal verification of documents. This may sound pretty straightforward, but this kind of loan can lead borrowers deeper into debt and, in extreme cases, without a car.
So let us explore how they work. If you were to take jewelry or other valuables to a pawn shop, an employee behind the counter would appraise your items and give you a loan based on what your items are believed to be worth worth.
In this case, the pawn shop will lend you money and charge interest. If you don't pay back the money within the agreed-upon time frame, you will forfeit your items. This is similar to how a car title loan works.
In a car title loan, the lending company evaluates the price of your car based on wholesale values and then gives you a loan based on what it thinks your car is worth. The lending company then holds on to your car's title until your loan is repaid.
The loan isn't similar to when you bought your car. This loan is a short-term loan with a hefty interest rate; if you don't pay back the money within a set time frame - with interest - you've essentially sold your car to the lending company by default.
Because this type of loan is based on equity you've built up in your car, with most title loan companies, you will be required to own your car outright. If you still owe money on your car loan, your car's title is still in the hands of the bank, so you can't use it as collateral for a loan.
Other requirements may include a minimum age, proof of your residence and proof of your income. You should always read the fine print. Driving your car to the title company to expediently get the money you need may seem simple enough, but before you give this loan the green light, you need to know what you are legally committing yourself to.
Look for the following information within your contract: How interest is calculated and the time period for which the interest rate is calculated. For instance, a 3% interest rate may seem OK until you read on and see that it's 3% per month, which is equivalent to 36% per year.
Also keep in mind that because car title lenders are in a different category than credit card companies or banks, they are not subject to usury laws, and are therefore able to charge higher interest - much higher interest. What the penalties are for late payments or nonpayment.
Could one late payment cause your car to be taken away? Does the loan's interest rate increase or are additional fees assessed for late payments? What are the mitigation rules? Are you required to go through mediation, or can you take the loan company to court if it becomes necessary down the road?
If your car is not really worth anything, or you don't have one, there are some alternatives to getting money quickly. You can use a credit card if you have one. Your boss may give you a loan against your next paycheck.
If you owe money to someone, call and find out if the can give you an extension so you have more time to figure out a way to get money. Payday loans are an option. Although payday loans can also charge high interest rates, you won't lose your car if you break your contract through late or non-payment.
You can pawn any other valuables you have. If you plan to get a loan or sell a valuable asset to get the money you need in a hurry, it might as well be an asset that you can afford to risk, such as a guitar you don't play anymore or jewelry you never wear.
Along the same lines, you might be able to receive more money for your items if you are willing to wait a little longer, for example by selling your stuff through an online auction or online storefront.
The bottom line is this, car title loans are one way to get money when you need it on the double, but they're not the only way. If you need money fast, research other options, such as credit cards, personal loans, payment extensions, payday loans, workplace emergency loans and selling items you no longer use.
