subject: Overview Of Title Loans [print this page] Car title loans, most often shortened to the simpler term of title loans, are loans where the borrowers use the titles to their cars to secure the loans. Such loans tend to be short-term, though exceptions exist. The meaning of secure in this context is simple, the titles of the cars are designated as collateral, the ownership of which is to be turned over to the lenders in case the borrowers default on the obligations of their loans. Loans with loan terms designating assets such as car titles as collateral are called secured loans, which tend to attract better loan terms in general than unsecured or uncollateralized loans.
How Title Loans Work
Car title loans work much the same as other loans - a would-be borrower meets with a willing lender in order to hammer out a set of mutually acceptable loan terms, and then finalize a loan contract using those agreed-upon terms. Such loan terms include but are not limited to the principals of the loan, the time length of the loan, the interest rates to be paid on the loan, the calculation method used for the interest rates on the loan, and the structure of the debt repayments to be made on the loan. The loan terms desired by the would-be borrowers are based on their needs while the willingness to lend and the loan terms offered by the lenders are based on the credit risks posed by the borrowers and whether lending money is expected to be profitable for the lenders.
Car title loans are unusual compared to most other loans because the appraised values of the cars being used as collateral to secure the loans have an important role in how the lenders calculate the would-be borrowers' creditworthiness and the profitability of the loans for the lenders.
In general, lenders base their assessments of would-be borrowers' creditworthiness on their available credit histories, or the records of their past financial transactions and how well they've managed to meet their debt obligations on previous loans. Lenders use this information estimate their probable earnings on the proposed loan principals under different interest rates and then set interest rates high enough to compensate them for the possibilities of the borrowers defaulting on the loans. Car title loans are unusual because the cars used as collateral are turned over to the lenders in case of default, resulting in higher probable earnings for the lenders under all interest rates because of their diminished losses in case of default and thus increased willingness on the parts of lenders to lend to the would-be borrowers.
Why Use Title Loans
The first and most favorable aspect of car title loans is their lower interest rates compared to comparable loans. Lenders are willing to offer these interest rates because of their higher probable earnings from the cars used as collateral.
The second major advantage to car title loans is their availability. Car title lenders either do not consider or find the credit histories of would-be borrowers less important than other lenders. As a result, borrowers with bad credit histories may find car title lenders perfectly willing to lend to them so long as their cars are valuable enough to offset the perceived risks.
Car title loans offer better loan terms, simpler resolution, and increased availability compared to standard loans. They are an excellent source of financing for anyone in need of immediate cash, but especially so for those who have poor or even lackluster credit histories.
