subject: Fast Funds When You Need Them [print this page] As the name implies, a title loan is a loan secured by the borrower's vehicle title. Because the amount of a title loan is typically determined by the estimated value of the collateral car, these loans are usually smaller than bank loans obtained by other means; the principle may be as low as $100, which is unheard of with other types of consumer loans. They're also a useful option for individuals with a short or damaged credit history because of the concrete collateral involved; this also speeds up the application and closing process, with many title loans finalized in under half an hour. Despite the reduced risk to the lender, many title loans come with formidable repayment terms and interest rates between 35% and 100%. Most lenders grant title loans without credit checks, and use the Kelley Blue Book to determine the current resale value of the borrower's vehicle. Borrowers can expect to access about half of that value, although some banks are more generous.
Collateral on Wheels
It's important to understand that a borrower does not lose his or her right to drive the collateral vehicle over the life of the loan. The lender holds the title, however, and may attempt to sell the vehicle to recover the lost loan monies if the borrower defaults on the repayments. Provided that the borrower pays back the loan according to the established terms, he or she will receive the car title at the end of the process. If the borrower needs more time to pay, or different repayment terms, many lenders allow them to take out a new loan and roll their unpaid balance over to that. It's crucial that prospective borrowers inquire about these issues before committing to any loan.
State Regulations
Several states enforce strict regulations regarding title loans in order to protect borrowers. In California, the borrower must demonstrate his or her ability to repay the loan before signing the contract, and all title loans must be amortized. In Illinois, no title loan may exceed $4,000, and balloon payments are forbidden. The state also publishes several pamphlets that educate residents on smart financial planning, debt resolution and related financial matters. Any bank or other lender that offers title loans must provide borrowers with these pamphlets. Several states place caps on title loan interest; in Iowa, the interest on a title loan must not exceed 35%, and the New Hampshire interest limit is 36%. Oregon extends special protection to military members and their families; the interest cap for these borrowers is 35%, although the rates for civilian borrowers may be higher.
A Useful Choice
Title loans are incredibly useful for people who need to quickly borrow small amounts of money. Borrowers should research the lenders in their area and not sign anything in a hurry; if time allows, it's wise to get recommendations from family and friends and ask some questions on Internet message boards. Spending a few extra minutes reading up on title loans helps ensure that each borrower takes out a loan that's right for them.
