subject: How Does A Title Work When You Need Cash? [print this page] It's inevitable that at some point, somewhere, you will need access to some extra cash. Whether your car breaks down, you get a speeding ticket, or an unexpected expense hits you square between the eyes, you will have something happen. For some of us, we can turn to our savings or our credit cards to pay for these unseen expenses, but in other cases we may need alternative lending methods. One type of loan that you can access is called a title loan, and this is how it works.
A title loan is a loan that is based on the valuation of an asset that you have the title, or full ownership of. The most common title loan is a vehicle title loan. A loan is secured against the value of the vehicle, with the title used as the collateral to insure against default.
A little complex sounding, so here is a breakdown of how it works.
Step By Step Title Loan
In this scenario we will assume you have a car, not too new but not old and rusty either. You would bring the ownership papers and the deed or title of the vehicle to a lender. It's important to have full ownership of the car, with no encumbrances or liens, otherwise the title loan will not go through.
Once you bring the necessary paperwork and ID to the lender, they will evaluate the car to determine the loan value. This is a pretty straightforward process. The lender will get the make, model and year of the car, and assess it against the valuation book, which in most cases is the Kelly Blue Book. This is available online as well, so make sure you check the value beforehand to ensure you are getting the best value.
The lender also considers your income in the lending decision, as it will indicate your ability and likelihood of repaying the loan. After that, they set the interest rate, payment plan, and give you the cash. You will sign the contract stating that a default will give the lender the ability to recoup the cost of the loan by the sale of your vehicle. It's important to note that you are signing over the title, not the actual vehicle at this point. You will still be able to drive it, however, if for some reason there is a default on the loan, the lender can have the car repossessed.
Advantages of Title Loans
The biggest advantage is the easy access to capital. If you own a vehicle, it's a straightforward process of signing over the title and getting a specific amount of cash. Since the loan repayment is set up as a payment plan, you also have the ability to pay the loan back early. Some lenders will not even assess a penalty for this.
Disadvantages of Title Loans
The interest rate for a title loan is significantly higher than a traditional bank loan. With interest rates upwards of 70 and 80% or higher it can be the start of a steep decline into credit issues, if you are not careful with your money. The other disadvantage of a title loan is that you are giving up control of your vehicle. If you run into issues with paying back your loan, you stand to lose your asset.
Title loans have a place as a form of alternative lending, and if you go into the situation aware of the pros and cons, and are careful with your negotiations, and your money, it can often be an easy way to access much-needed capital.
