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Meaning of Car Title Loans

Car title loans are short term loans usually for a period of 30 days. This type of loan is only accessible to car owners. Individuals seeking to obtain car title loans will be asked to deposit the title document of their car as collateral. This serves as security as the lender will like to place lien on the car for possible repossession in case the borrower defaults in payment. Title car loans are generally very easy and fast to obtain as long as the borrower is willing to let go of the title of his car. Nonetheless, the title of the car has to be free of any lien and the car should be in a good working condition. If your car is financed and you are yet to finish paying the car loan, you will not be able to use the car as a collateral. Therefore, you may be unable to get a car title loan with a financed car.

Car title loan is usually for people who are in a dare need of cash. They must have tried all other available options and have proved abortive. This is peculiar to people with bad credit. That is why the APR on the loan is usually very high when compared to other types of loans. The interest rate that will be charged may range between twenty five and fifty percent. So, by the time you consider the APR, it can be as high as three hundred percent and above. Even, the regular credit cards that people think usually carry high APR are far cheaper than car title loans. Why car title loans may be an option for people with bad credit is that, the lenders don’t check your credit neither are after your credit score. Some lenders may not even ask you to provide a proof of your income or employment as in the case when one applies for credit card. This makes the whole process very short and fast.

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Do Car Title Loans Affect Your Credit?

One of the questions you may want to ask is whether car title loans will affect your credit. The loan does not require credit check, hence it may not impact your credit in any way. Since you need to put down the title of your car, the loan is considered a secured loan. Unlike unsecured loans that require credit check and high credit score, auto title loan is completely different. When you borrow auto title loan, you are borrowing money off your car. Therefore, your credit is not important in this case.  Even if you default, the lender may not have any cause to report you to the credit bureaus.  Your car is there as collateral and the lender can sell it to recover his money. Therefore, you may not bother about your credit. The only risk is the possibility of you losing your car if you are unable to pay back the loan. On the other hand, when you pay your loans on time, your credit score tends to go up. But this is not the case with auto title loans. You cannot use car title loans to build your credit. But it will be to your own good to ensure you pay off the loan on time so that you don’t lose your car to the lender.

How Laws Protect Consumers

Government is not unaware that some predatory lenders may like to use car title loans to take undue advantage of consumers with bad credit who may not be able to get credit or loans easily from other sources. Therefore, each state has its own laws that regulate the activities of the pawn lenders so as to protect consumers against fraud or unfair exploitation. These laws are not the same in all the states. In few states, car title loans are totally prohibited while in other states, the loans are regulated. Therefore, you may need to find out what laws say about auto title loans in your state so that you can know your rights. The areas where the laws protect the consumers include the following:

Lenders: Car title loan lenders are required to be licensed. Their activities are regulated in order to protect unsuspecting consumers from fraud. They are expected to operate within the ambit of the set laws. If you borrow an auto title loan and you later discover that the lender is not licensed, you can actually take legal action against him.

Maximum loan amount: In some states, there are limits to the amount of auto title loan a person can borrow. The maximum loan amount can be a particular amount as in the case of New Hampshire and Missouri where the cap was set at $10,000 and $5,000 respectively. On the other hands, some states set the loan cap in relation to the value of the car being put down as collateral. For instance, while Nevada allows consumers to borrow up to the fair value of their car, Virginia sets its cap at 50% of the value of the car.

Costs: This has to do with the rate of interest that lenders may not go beyond. On average, the interest rates on car auto title loans is around 25%. But in some cases, no cap is set. This means that lenders can charge any rate on their loans. However, since the market is competitive, consumers have the privilege of shopping around in order to ensure that they are not paying too much interest on their loans. While shopping around, you should understand that lenders may charge other fees. However, lenders are not allowed to engage in false advertisements.

Loan Terms and Renewals: Lenders are expected to clearly spell out the terms and conditions of their car title loans. In most cases, auto title loan term last for 30 days. Rollover may be allowed under certain conditions.

Repossession: Even though you deposited the title of your car, the lender may not sell your car without giving you notice. If you default and your car has been repossessed, you can still pay off the loan if you are able to get the money before the car is finally sold. After paying the full loan amount, the title of the car will be released to you. However, if you are unable to pay, the lender will sell your car. He may keep the full proceeds of the car or refund you the excess amount after the loan balance and other associated costs have been removed. This will depend on the laws that exist in your state. For detailed information, you can read Title Loan Regulations & Citations by State.

How to apply for car title loan

The process involved in applying for a car title loan is very simple. It involves taking the following steps:

Decide on the amount to borrow: You should have a definite amount that you want to borrow. In most cases, the lender will be willing to grant you a car title loan that is up to fifty percent of the value of your car. That is, if the saleable value of your car is $3,000, you will able get a car title loan of up to $1,500. Some lender may be willing to grant you a title loan that is up to seventy five percent of the worth of the car. But no lender will grant you a loan of the amount that is the same as the worth of the car even if it is still new. This is because, if the borrower defaults and the lender needs to take repossession of the car, he will likely incur certain costs before he will be able to sell the car. The fact that lenders are willing to grant you a loan up to $1,500 does not mean that you should apply for the amount. In order not to put yourself under unnecessary financial stress, it is better you properly assess the amount that you actually need. Whatever the amount you are granted, it will become due on or before the thirtieth day after the loan is released to you. Don’t forget that you will not only pay the principal, you will still need to pay the interest as well. For instance, if you are granted a car title loan of $1,500 at 25% interest rate for thirty days, it means that you will have to pay back $1,875 in a thirty days period. If you are unable to pay this amount, the lender may repossess your car. On the other hand, you may be given an option of rolling over the loan. That implies paying another 25% interest on the new loan. This may continue until you finally pay the entire loan. But with the intervention of the government, there is limit to how many time the loan can be rolled over. This is essentially to prevent the borrower from being in debt perpetually thereby making him a prey to the lender. Because of the high rate of interest involved, you should only borrow the minimum amount that you need for what you want to do with the loan. It is not even compulsory that you should get the whole amount from just one source. Perhaps you can get part of the needed amount from relatives.

Be sure of how to pay back: Don’t borrow car title loans if you are not sure of how you are going to pay back the money. You should only borrow this loan when you are very sure that you will be able to pay back the amount in the due date. Just like payday loans that are borrowed against paycheck, car title loans can be borrowed against the income you are sure of receiving within thirty days. Otherwise, you stand the risk of losing your car. That is why it can be considered riskier than payday loans. In the case of payday loans, the security is the check that you will need to issue to the lender. The amount on the check will cover both the principal and the interest. That is why payday loans lenders will usually ask for the proof of your employment and your pay slips.  But in the case of car title loans, your car serves as a security. While payday loans may be for the salary earners, car title loans tends to be good for self-employed who may not have history of fixed monthly income.

Shop for lenders: Apart from the traditional banks, there are many online lenders nowadays where you can get the loan from. So, if you just type car title loans near me in your preferred search engine, some companies that offer such services will appear. Shopping around will help you get the best deal. When shopping around, you should understand that you are not comparing the interest rates only. Some lenders may charge lower interest rates while they include other charges which may not be obvious. That is, such lenders usually advertise just the interest rate on their website. It is your responsibility to ask further questions. Other fees that lenders may likely include on car title loans costs include origination fee, processing fee, title fee, lien fee and late payment fee. So, instead of just comparing the interest rates, it will be better to compare the APR which is known as Annual Percentage Rate. APR is the true representative of any given loan costs as it takes both the interest rate, other fees and charges into consideration. Any loan with the lowest APR will be the best. However, you may like to consider other qualitative factors such as their quality of customer service, customer complaints and the general review of the company.

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Understand the risk: I need to include this here so that it won’t be like a medicine after death. You should understand the risks involved in taking a car title loan. The risk is that, you can lose your car to the lender if you can’t pay the full amount of the loan including the interest when due. From the information gathered from the research conducted by Pew Trusts on the experiences of borrowers of car title loans, one out of five title loan customers lose their car. While some lenders allow rollover, some end up paying interest of $1,200 on $1,000 car title loan. Furthermore, it was reported that about eighty four percent of the car title loans in Tennessee are renewals. This is very alarming. So, you should understand what you are going into. In other words, you should look before you leap.

Apply for the loan: Once you have decided on a particular lender and you have considered the implications of what you going into, you will need to submit your application for the car title loan. In addition, you will be asked to provide the title document and proof of insurance of the car, driver’s license or any other valid government issued means of identification and a proof of your residence. Even if you apply online, you will still need to visit the office of the lender for proper identification. Also, the lender will need to inspect the car and ensure that the value of the car is well above the amount of the car title loan you are requesting for. If your application is approved, you will need to agree to the terms and conditions of the loan by signing relevant paperwork. It is essential that you thoroughly read and understand all the terms and conditions including the repayment obligations of the loan before you sign any document. Once you have appended your signature on the loan documents, the terms and conditions of the loan become binding on you. Before the money is released to you, you will be asked to surrender the title of the car. Most lenders will allow you to go with your car while some may request for the duplicate key to the car. With the help of technology, lenders can track your car to know the location of the car per time. This reduces the risk of borrowers running away from the car.

Pay back the loan: When you are in debts, you will understand how short thirty days can be. A month will seem to you as just a week. So, immediately you get the loan, you should start working out the plan on how to pay back the loan. Rollover should not be an option to you even though the lender allows you to do so. Rollover will increase the interest you will pay and this may make the repayment of the loan to become more difficult for you. Lenders earns more income when borrowers rollover their loans. You can imagine how painful it can be losing your car after paying huge amount of interest and you are still unable to pay off the loan amount. In most cases, people take car title loans when they are expecting to receive tax refund. They use the tax refund to quickly pay off the loan when received. Also, if you are finding it difficult to pay the loan, you can run to friends and relatives to bail you out. It is possible that the income you are expecting is delayed. If you explain your situation to them, they may be willing to assist. But it is important that you keep your promise by paying them back immediately you receive your income. Don’t divert the money to other things so that you don’t spoil the relationship. Once you have paid the loan and the interest thereon, the title of your car will be returned to you, thereby removing the lien from your car.

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Alternatives to Car Title Loans

As said earlier, car title loans are very expensive. Besides, you stand the risk of losing your car if you are unable to pay back the full loan amount. So, instead of exposing yourself unnecessarily, you can consider other borrowing alternatives. Someone once said that there will always be a better way of doing things if only we are ready to explore the alternatives. Below are considered to be better options than borrowing a title or pawn loan.

Borrowing from friends and relatives: Your friends and relations are the closest people to you next to your immediate family. If you surround yourself with good friends and you have earned the trust of your relations, they will be available to provide you supports when needed whether financially or otherwise. A friend in need is a friend indeed, they say.

Borrowing from employers: If you work in an organization that allows borrowing, you can take advantage of this. You can borrow against your salary or a bonus that you know you will get in the near future. At times, employers may want to demonstrate that they care for their staffs by providing soft loans to them which will be deducted on instalments from their salary. The only disadvantage of this to staff is that, it may prevent them from changing job except they are able to pay off the loan.

Reduce spending: You can cut your spending instead of going into debts. Seeking for loan may be a clear indication that you are living above your means. If you can cut certain expenses which are not too necessary, you will be able to make come savings. At times, cutting your expenses may not mean denying yourself of important things. What you need may just be creativity. For instance, instead of eating outside, you can decide to prepare your own meals at home. You can lower your cable TV bills by just subscribing to channels that you watch. You can reduce your electricity bills by switching off the light that you don’t need per time.

Negotiate with creditor: If you are due to pay some bills, you can approach your creditors and negotiate with them. If you know you will be unable to pay the bill, you don’t need to wait till the bills are due before you approach your creditors. Telling them about your financial predicaments ahead will make them see you as a responsible person. This can make them to extend their terms of credit with you. Delaying the payment of some bills can help you cushion or smoothen out your cash flow.

Take personal loan: Unfortunately, some people rush into taking car title loans just because their friends tell them about the loans without exploring other available options. Some are influenced by TV adverts. Even though car title loans are considered loans for people with bad credit; that does not mean that these people can’t get loans elsewhere. Some banks and credit unions still have loans and credit that target people with bad credit. The only thing is that, the interest rates on such loans will be higher than regular personal loans. Notwithstanding, the interest rate or APR on such loans will be lower than that of the car title loans.

Read Also: How to Get Loan with Bad Credit Score

Use credit card: Credit card allows you to buy things now while you pay the card issuer back the amount you spend through the card later. With credit card, you don’t even need to make full payment of the card balance at the end of the month. You are only required to make the minimum payment on the card balance. If you make your minimum payment on time, you will still appear good to the credit bureaus. Paying on time will also help you build your credit score.

Sell unused personal items: If you look around your home, you will locate some items which you don’t use. That does not mean such items are not useful. But if you don’t use them, it make be an indication that you don’t need them. You can sell off such items to generate income. Besides, certain items you consider not useful to you may be useful to other persons. One man’s trash may be another man’s treasure. If you place such item on Craigslist. If you don’t know how to go about this, this article on How to Sell Items on Craigslist will provide a good guide.

Earn more income: There are people who can conveniently keep two jobs at the same time. If you fall into this category, there is nothing stopping you from seeking for a second job. You just need to ensure that the job will not clash with the one you have. Also, if you think that you desire a better salary, you can walk up to your employer to ask for a raise. However, you should be able to justify your request. 8 Managers Share The Best Way To Ask For A Raise (And Get It) here. If still you are refused the raise, it may be a good time to start searching for a better paying job.

Sell your car: This option may sound very tough but it may be the solution to your problem. If you are driving a very costly car which you are finding difficult to maintain, it may be better for you to sell the car and buy less expensive one. This will be better than allowing the lender from taking repossession of your car. You will be able to avoid paying high interest on the loan. At the same time, you will have a better value for the car. While you use the proceeds from the sale of the car to buy a less expensive car, you can use the remaining amount to fix your immediate financial issues.

Go for Counselling: If you are still finding it difficult to come up with a good solution to your financial predicaments, you may need to contact credit counsellor. There are organizations that provide low cost or free debt and credit counselling services. Organizations like NFCC Connect and Credit.Org are non profit organizations with good number of certified consumer credit counsellors. They offer wide range of services covering credit and debt counselling, bankruptcy counselling, housing counselling, reverse mortgage counselling, student loan debt counselling and advice, debt management plans and programs, credit report reviews and general financial education. They also offer advice to business owners. No matter where you are, you will find a location of their office or representative that is close to you. A good debt and credit counsellor can help you come up with answers to your debt and credit issues.

Read Also: Differences Between Secured Loans and Unsecured Loans

Pros and Cons Car Title Loans

Before I come to the conclusion of this article, I will like to highlight the advantages and disadvantages of car title loans.

Pros of Car Title Loans

Quick Cash: Car title loans are great ways to get quick money. This can be good for people that need to attend to certain emergency situations and may not have time to wait for long approval process required for traditional personal loans. You can get your pink loan within one or two days once the title of your vehicle is available.

No Credit Check: Lenders don’t check the credit of the borrowers. So, people with a bad credit can easily access car title loans. The status of your credit score does not influence the interest rate you are going to pay in any way.

Availability of your car: Even though you use your car as the collateral for the loan, you are still in possession off the car and still have the privilege of using the car during the loan period. So, you still go about with your normal lifestyles. People around you will not know anything about your financial issue as long as you are able to keep with the payment terms.

Proof of Employment or Income: Unlike payday loans, some lenders will not ask you for your employment proof or income pay slips. All what is required is for you to own a car that is in a good working condition free from lien. However, you will need to release the title of the car to the lender.

Cons Car Title Loans

High interest rate: The interest rate and APR of the loan is generally too high. This may make it difficult for borrowers to pay back the loan. The money paid as interest would have been used to pay back of the principal if it is a regular personal loan.

Short term: The loan is just for a short term period. Most borrowers may not have recovered from their financial handicap before the loan is due for payment. This may necessitate the rollover of the loan. Rollover comes with another interest expenses and some other applicable fees such as late payment fee.

Risk of repossession: The ultimate risk involved in getting a car loan is the risk of repossession. Repossession means taking the car by the lender if the borrower is unable to pay back the loan. It is usually said that a cow doesn’t know the value of its tail until it loses it. If you lose your car, you will lose the benefits of owning a car. Some of the benefits of owning a car include the following:

• Freedom: Losing your car will mean that you will no longer free to move around when and how you want. When you drive your own car, you are free to take any route that is best for you. But if you travel with a public bus or cab, you may be limited to particular routes.
• Shopping: Shopping is easier when you go with your own car. I remember when I took my car to a mechanic workshop for a major repair. The car was with the mechanic for three days. Within these three days, I realized the benefits of owning a car. It made me to understand that there are certain things we take for granted because we are used to having them. It was when I needed to refill our gas cylinder and the car wasn’t available that I knew how important the car was to me.
• Convenience: In most cases, public buses can be very crowded with people talking or making some noise which can be disgusting to you. But in your own car, you can sit more comfortably. You can even adjust the seat the way that is comfortable to you.
• Outing/Picnic: If you want to go out with your family to a function or you want to go to beach for relaxation, this is best done with your own car. You can carry along with you anything that will make your day memorable. You can even decide to stop on the way to enjoy some beautiful scenes.
• Standard of living: Having a car can increase your standard of living to certain extent. For example, there are some places you may not be able to work or live if you don’t have a car. For instance, if your job involves working late, you will need a car.
• Privacy: With your own car, you don’t need to depend on anybody before you go out. At times, when you take public bus, the driver may want to check what you carry. But if you just put the items in your car’s booth, nobody knows what you carry or where you are coming from.

Read Also: How to get your personal loans approved quick

The list of the benefits of having your own car could not be exhausted. Why I mentioned few of the benefits above is for you to know the implications of taking a car title loan. If you are unable to pay back the loan and you lose your car in the process, it will bring a lot of discomfort to you. It is better not to have a car at all than to have it and later lose it.

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