Sometimes surprise expenses happen. An unexpected bill, home repair, auto repair, or emergency can put a strain on your finances. Sometimes you just don’t have the money on hand to pay for the bill that caught you off guard. When you are in this situation and need money, a car title loan may help.

We are going to discuss the pros and cons of car title loans, how they can benefit you, and what you need to keep in mind when you are considering a car title loan.

The first pro of a car title loan: It’s quick to apply.

The first benefit of a car title loan is that the application process is quick and efficient.  You fill out a short application with some personal and vehicle information and the process is started. It’s as simple as that!

Many times you can get the cash you need on the same day you apply. It all depends on how quickly you submit your application and get the lender the information you need. If you have a medical bill, funeral to pay for, the vehicle in desperate need of repair, or an emergency in your house a title loan can be the thing you need to turn to. It can give you an immediate influx of cash.  The best part is if you are 100% certain that you can pay back the loan you are getting the risk of putting off your vehicle is zero. And because you don’t have to have a good credit history with this type of loan, you won’t have to worry about your financial past. You can focus on the current emergency.

The second pro of a car title loan: You get your cash right away.

The second benefit is that the approval process is efficient and speedy.  The amount you can apply for is based on the value of your car. Some lenders will allow you to take up to half of the value of your car out as a loan. Once you are approved you can get access to the money you need, most of the time on the same day you apply. This is definitely helpful in a pinch when you need that cash right away.

The third pro of a car title loan: Low or poor credit does not stop you from obtaining a loan

The last benefit to using a car title loan is that these loans though will do a credit check to figure out how you will pay back the loan but it does not stop you from obtaining the loan amount that you want. Car title loan will check your credit score to know if you will be eligible to pay back the loan in due time and they will genuinely advise you on the type of loan amount that will suit you. But even after your credit check and they discover that you have a poor credit, Car title loan will still offer you a loan. This is because you are using your car title as collateral for the title loan. This is definitely helpful for people with a less than optimal credit rating.

The first con of a car title loan: The high interest.

The first con of a car title loan is the interest you will face upon repayment of the loan. The interest on a car title loan can far exceed the interest on a credit card. It can range from 25% to over 200% depending on the lender you go to. A reputable car title loan lender will ensure that you are clear about the annual percentage rate and not just the monthly interest rate when taking out the loan. Make sure you are able to repay the loan as quickly as possible – definitely by the due date – to avoid late fees.

The second con of a car title loan: There is the possibility you can lose your vehicle.

When you take out a car title loan the lender will put a lien against your vehicle. This means that if you are unable to repay the loan, the lender has the legal right to repossess your vehicle to collect on the debt. This is a major con to taking out a car title loan. Make absolutely certain that you can repay the loan in the allotted time if you don’t want to have your car taken away!

Of course, you need to be realistic. Anyone who says title loans have zero risks is flat out lying. There is the chance, if you do not pay back your loan, the lender can take your vehicle away. The word “title” in “auto title loan” or “pink slip loan” refers to the collateral you’re putting up. If you don’t pay the lender back or fall behind you’ll lose that title. The car then becomes the lenders and not yours…so be aware of this fact.

Of course, due to the high interest rate on this loan you want to make sure you can afford the payments and can pay back the loan in a timely matter. If you have solid cash flow then the risk of losing your vehicle due to repossession is low. If you don’t have future money coming in, however, the risk is can be high.

The third con of a car title loan: You have to shop around for the best terms.

The last con is that you will need to diligently shop around when considering a car title loan. This is because the terms, interest, and fees can vary from lender to lender. It is in your best interest as a customer to ensure you get the best deal. Make sure you that you fully comprehend the terms of your loan and do your homework on the lender before you sign on the dotted line for that loan.

Overall, car title loans can be a quick and easy way to cope with a short term cash flow issue. Of course, it is not an option that should be used regularly, to avoid being stuck in a cycle of needing to use car title loans regularly. It is recommended that you shop around, and ensure you know the APR and terms before taking out a car title loan.

Things you need to know about title loans

Sometimes you’re confronted with unexpected financial obligations that require immediate actions, and taking a loan is often the go-to choice. Most types of loan are secured which means you have to put up property to qualify for the loan.

Certain aspects of title loans you need to know

Title loans are an example of secured loans. An auto title loan is a secured type of loan where borrowers use the title of their vehicle as collateral to get a loan. Auto title loans provide you a fast and affordable way to borrow cash using your vehicle. The following are certain aspects of title loans you need to know when deciding if they are a good option for you and your financial situation, their benefits, and risks.

They are secured

Secured loans are loans that expect you to put up your property as collateral before you can get the loan. This collateral acts as a guarantee for the lender that you will repay your outstanding debts on time. In the event that you default repayments, the lender has the legal right to sell the property to recover the outstanding debt.
You are expected to put up your vehicle as collateral for auto title loans. If you are unable to pay your loans within the agreed time frame, the lender can repossess your vehicle and sell it to pay himself.

They are short term

It takes a short time to have title loans processed. The repayment schedule of car title loans is expected to be made within a 24 to 48 month period. Car title loans have a short maturity period compared to other long-term loans, they also have no prepayment penalties. So you can pay off at any time..

Bad credit is ok

Most individuals who have been in debt before often have poor credit scores. This is because, in the process of borrowing, they might have delayed in making repayments or defaulted altogether. People with poor credit scores may feel disadvantaged when approaching traditional forms of borrowing. That is because they perform credit checks on borrowers before extending credit. Potential lenders distance themselves from borrowers with a low credit score with the assumption that if they had once defaulted in making repayments, they could do it again.
Auto title loans seek to help borrowers who are turned away by other lenders due to poor credit scores. With title loan lenders, they are concerned about the collateral you put up for borrowing and not quite your credit rating. You will also need to show your proof of income, to show you will be able to pay for the loan.

High- interest rates

Lenders tend to impose high- interest rates on loans if they are unsecured. In an unsecured loan, the lender faces the risk of losing his money if the borrower defaults repayment and there is no property to repossess as the loan does not require the borrower to put up collateral.
Though car title loans are unsecured loans, high- interest rates that may be over 100% APR still apply. Lenders claim that the high- interest rates are due to the fact that they extend loans to people who are already facing financial difficulties.

 Loan calculation

The amount a borrower can get in car title loans depends on the worth of the vehicle. The lender generally looks at the vehicle being used as collateral and estimates the amount it would fetch if it were to be auctioned. Then, the lender offers a loan that is up to 85% of the vehicle’s worth. In the event that the borrower is unable to make repayments, the lender enjoys much profit that accrues from auctioning the vehicle. It is imperative to have a basic understanding of how to calculate these loans to avoid a scenario where the lender may extend you a loan that does not match the worth of your vehicle.

Eligibility of title loans   

Title loans, like any other forms of borrowing, require borrowers to meet certain criteria before they can qualify for the loan. The basic requirement is that the borrower is expected to be 18 years or older.
A car title loan requires the borrower to put up his vehicle as collateral. The ownership of a car is a prerequisite for getting a car title loan. Car title loans may be applied for at a store or online. When filling out an application form for an online car title loan, lenders require you to specify details such as your Vehicle Identification Number and other Insurance Policy Numbers. The model of the car is also important. Upon approval, the borrower is required to visit a store to pick up their money usually in the form of a check.

Risk of losing the car

When taking out a car title loan, you need to be sure of being able to repay the loan within the agreed time frame. You have used your vehicle as collateral and that means in the event that you default in making repayment, the lender has the legal right to repossess your vehicle and sell it to recover your outstanding debt. In the long run, you would have lost both the money and the vehicle.

Read the loan agreement carefully

It is a common mistake with many borrowers who are desperately in need of money that they do not thoroughly read through the terms and conditions of the loan. They just skim through the pages in the haste. Thorough scrutiny of the loan agreement saves you from falling into a debt trap. To be on the safe side, you should check the interest rate and other fees of the loan and also evaluate whether or not the loan terms work for you.

Differences between a car title loan and a car purchase loan

Compare other lending options

Many people may get lost in the similarity of names. They are totally different. A car purchase loan is a loan taken out by a person who wants to buy a car while a car title loan is a loan taken out by a person who already owns a car and is willing to put it up as collateral.

Compare other lending options

People who are going through financial difficulties may approach any form of borrowing in a desperate attempt to meet their pressing financial needs. However, it is important to consider other borrowing alternatives. For instance, you may decide to forego a loan with high- interest rates and approach one with favorable rates and other loan terms.