“Get Fast Cash!” “No Credit Check Required!” “Borrow Against Your Car and Keep Driving It!” What’s the first thing that comes to mind when you see such ads? The solution to your current problems?
It seems like a foolproof way to get some instant cash to solve that problem you have. However, not all that glitters is gold, and as alluring as it is, it may end up being a regrettable mistake.
Why do we say that? Well, there is more to car title loans than meets the eye. Even the best title loans can put you in a very bad spot, but they may still be helpful if you tread carefully.
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What Are Title Loans and How Do They Work?
Also known as title loans or auto title loans, car title loans are small secured loans you get against your vehicle as collateral. Once you go to a car title loan lender, they take your car title as collateral and offer you a short-term loan, usually 30 days or less.
Given that you have collateral, there’ll be no need for a credit check, and you could get the money in just a few hours, or even minutes. The thing is, car title loans are meant to be paid in full as borrowed together with any fees included within the given time period. Now, all this may seem okay, but let’s dig deeper and look at several things you need to understand about title loans before you get one.
1. You Must Have a Clean Title to Get the Loan
Before you search for the best title loans and apply for one, you need to know that you must have full ownership of the car.
A clean title, also known as an absolute title, is free of deficiency or any property related encumbrance. This means your car can’t be disputed by anyone else should there come a time when the lender needs to possess it.
2. Title Loans Are Very Common and Have a High Acceptance Rate
The fact that a credit check is not necessary when getting a car title loan makes it very easy to get. Most applications get approved right away, and the money offered immediately.
The title loans requirements are usually very basic as well, meaning that almost anyone with a clean car title can qualify for the loan. For these reasons, these loans have become quite popular, with some people applying simply because they are convenient and offer instant cash, unlike other mainstream loans.
3. The Amount You Get Depends on the Value of the Car
The amount of money you get from the best title loan lenders will highly depend on what your car is worth. The loan needs to be less the value of the collateral to prevent the lender from losing their money. This means that they need to evaluate your car before deciding how much you deserve to get.
Some lenders may also ask for proof of employment and income before approving the loan so check for car title loan estimates and requirements before applying.
4. Title Loans Are Poorly Regulated
The most surprising thing about car title loans may be the fact that they are recognized as predatory loans in some areas. This means that they are exploitative and target the most vulnerable people who can barely afford the high-interest rates and fees.
Different states impose a different APR cap on how much lenders can charge borrowers on this kind of loan. Some states limit the amount of money a borrower can get, how refinancing is handled, and the length of the repayment period as well. You should check with your state should you decide to go ahead with the application then look for the best title loan lenders available.
5. The Fees and Interest Rates Are Ridiculously High
The Annual Percentage Rate, or ASR measures how much a loan will cost you if it remains outstanding for a whole year. Car title loans come with an average APR of 300%, which means that if it were to last one year, you would pay three times the original amount you borrowed.
Technically, when you take out a title loan, you have one month to pay it back and a 25% interest rate. The truth, however, is that not most people can afford to make such a payment. Failure to pay the loan in time means either the lender will take your car, or you’ll have to roll over or renew the loan with additional fees and interest.
One more month would mean an additional 25% interest rate, and before you realize, every month, you only afford to pay the interest, but the principal never changes. This turns into a ridiculous never-ending cycle, and eventually, when you realize you’re trapped, the last option you have is to allow the lender to possess the car.
6. A Majority of Borrowers Lose Their Cars
One of the most disheartening facts about title loans is that in the end, one in every five borrowers lose their cars to the lender.
Having your car repossessed can have further implications on your finances and disrupt your life as well. A majority of the people who use car title loans have a single-vehicle in their household, which makes it hard to get around once it ends up with the lender.
7. A Large Percentage of the Loans Result to Financing
Even the best title loans are meant to be short-term, but surprisingly enough, most lenders don’t intend them to be. This is a cutthroat business where a majority of the lenders actually depend on loan financing to cash in on the profits. This means that the title loan industry depends on the fact that most title loan lenders have the inability to afford their loans.
Borrowers keep rolling over and financing the loan just to avoid defaulting and losing their vehicles. Unfortunately, though, even after making long term payments, some still end up losing their vehicles.
The Best Title Loans: Are They Worth It?
Now you know what to expect when you search for the best title loans and apply for one. You need to be sure that you can pay the lump sum of money in the stipulated time to avoid losing your car.
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