Are you planning to negotiate your car for an emergency loan to buy something? Perhaps you should consider first the implications in case you can’t settle the loan in 30 days. Since the lender will have a lien over your vehicle (or other property that you have proof of ownership), he can take possession of it and sell. You’ll not only lose your asset but a great portion of the market value of your property. Title loans are high interest bearing loans. And the loan value of your car is only between 30-50% of the price prevailing in the market. So think it over. While you may acquire what you desire, your losses are of very significant amount.
What are Title Loans and How They Work?
Basically, a title loan is a loan contract where you borrow money while you submit an asset as a collateral. Such type of loan is commonly in a triple digit small amount of money. It normally matures in 30 days and is a subject to roll-over if you fail to pay it. The interest rate is very high. Instead of the usual credit performance, title loans do not depend on your credit score at all. In fact, you can expect an application to be approved once you’ve provided a title over an asset as a collateral. Usually titles over cars, motorcycles or even houses are offered as collateral for this kind of loan. The term title loan is derived from the word title, meaning proof of ownership over a property.
A title loan is often used for emergency purposes such as a medical operation where every minute counts. If you are willing to sacrifice an asset just to address your current financial problem, then a title loan can easily solve it. Car titles are the most common pledges under this loan.
A title loan works when you offer collateral as a guarantee to the money you are borrowing from the lender. The security is your house, car, land, or any of your property that is covered by a title or document to prove your ownership. In most cases, the borrower holds on to the title and this is delivered to the lender for annotation of his lien over it. It is important that your title over the property is clean, meaning it’s clear of encumbrances. There are other creditors that just keep the titles in their possession to avoid the cost involved in registering their liens. If the borrower fails to pay his account, it’s then that the creditor moves to consolidate his right over the property. The asset pledged as a security under a title loan remains in the possession of the borrower. It is only upon his failure to pay the lender that the asset is surrendered to the creditor. With the attendant risk of foreclosure, a title loan’s interest is lower than an unsecured payday loan but definitely higher than a secured regular loan offered by banks and credit unions.
The amount you’ll get out of a title loan is normally a percentage of the market value of the asset you are giving as collateral. For cars, it’s between 30-50% since lenders will consider the resale value of the car and the time needed to convert it into cash just in case. The borrower has no say on the amount he could borrow under this kind of title loan except to bargain for more. The proceeds of the sale of the property is all for the account of the creditor. The borrower losses his equity over the property disposed.
Fast, Safe, and Convenient
A title loan can be acquired once you’ve given all of the necessary documents needed by the lending institution. It’s a safe and convenient way to get a loan without going through a lot of hassle. Getting loans approved nowadays is fairly fast and easy especially if it involves collateral. The only way that will prevent you from getting a loan application approved is when the title isn’t clean. Other than that, getting such type of loan is fast, safe, and convenient. What you need to present is your car, a clean title over it, an ID and sometimes an extra key of the car.
Once the loan is approved, you can have your money immediately by an online deposit to your bank account. Getting your money is both safe and convenient as you don’t have to travel with it from the lending institution to the bank. Usually, you can directly transfer it to the account of your choice.
Just like with most types of loans, a title loan is offered by many online credit companies. Going online is a good move especially if you are on a hurry. Online creditors usually provide a fast, safe, and convenient loan process to their clients. It’s one of the benefits that you get when you make a transaction over the internet. In case a lending institution can’t provide such type of transaction, then it’s better if you do it manually or offline.
While it’s always easier for clients to make transactions online, they should always be alert when they are working out a title loan. There are lots of scammers on the internet who introduce themselves as legitimate credit companies. Once they gain your trust, they take advantage of you in any way they can. This is why you need to look for a reputable lending institution. Do your homework first before you jump into signing a contract with a lender. You can always scan the internet for feedback on whether the company you are about to deal with is legitimate or not. Checking out customers’ feedback is also a smart move. Remember that there are many states that have banned title loans due to its excessive interest rates.
Is Credit Check Involved?
As mentioned above, the credit performance or rating of the borrower isn’t considered when it comes to title loans. More often than not, the lending institutions focus on what you put up as a collateral to secure the loan. Other than that, they do not usually look at your credit performance. Whether you have poor or bad credit score on your previous transaction does not really matter with title loans. In short, a credit check isn’t usually involved whenever you apply for such type of loan. All that matters most to the credit companies is what they can take from you incase your fail to pay.
In general, a title loan should only be used as an emergency option if you are totally helpless at the moment. Despite being a better option than payday loan, a title loan should not be your first resort. Borrowing money from a rich friend, relative, a bank or credit union should be on top of your list. Aside from the fact that they may not require a collateral, you can also expect a low interest rate. Besides, you can stretch out the terms of the loan if that is favorable to you.