How Title Loans Work As Collateral
Title loans are typically short-term plans with high-interest rates, in which the borrower utilizes their vehicle to act as collateral for a loan. In most circumstances, these types of loans have higher interest than other loans because the lender rarely checks borrower’s credit; consideration is based strictly on the value of the vehicle. It usually takes up to fifteen minutes for loans of about one hundred dollars. Normally, financial institutions will not loan more than $1200 to anyone with bad credit because the risks are not worth it. Many lenders will also want to see that the borrower has another source of income.
Main Benefits of Title Loans
- Title loans give quick cash in your hands and that means you can pay off any emergency needs.
- With title loans, you will not be required to have the same documentation as other personal loans. For people in tough situations without any means of cash, employment or credit, a title loan is their only option.
Title Loans Process
The process involved usually entails basing the amount on the collateral loan in question, namely up to about fifty percent of the vehicle’s resale value. The borrower must show proof of the title, which means the car has to be paid entirely, with no financing or liens. In addition, insurance on the vehicle is also essential for some lenders. Depending on where the lender resides, interest rates can range anywhere from 35% to 65%. Schedules for payment vary quite a bit, but in all circumstances, the borrower has to at least pay interest according to the payment plan. When the term is up, the remaining balance may be required in one payment. If at this point the borrower is found unable to pay in full, he or she may be given an option to roll the balance over and formulate a new auto loan. Regulations only allow a certain number of times for the loan to be rolled over, so that the borrower will not remain in debt interminably.
Lastly, a vehicle does not necessarily have to be brand new in order to be useful for a title loan, but it does of course have to contain enough value for the loan in question. Lenders often seek a variety of resources to find out the value of the vehicle. Upon realizing the value of the vehicle, the lender creates a contract for the borrower to sign. It is vital to understand that lenders actually benefit from repossessions and hiked interest rates, as some lenders have actually taken up to 300% more than the loan itself. At this rate, a $1,200 loan would create $600 in interest.
Title loan lenders are required by federal law to disclose their interest rates as an annual percentage rate (APR) and not in a monthly rate. Do not get tricked by gimmicks. It is important to distinguish between these two rates and focus on the APR for your title loans. Once you know your APR, think over once again if a title loan is your only option. These types of loans are truly for those with no other means.
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