What You Need to Know About Title Loans
There are a lot of different ways to borrow money. From bank loans to independent loan agencies, there’s something for everyone who needs a little extra to meet their goals or make ends meet.
Title loans are a lesser-known option that often gets overlooked when searching for loan providers. Here’s everything you need to know about title loans to determine if this borrowing option is right for you.
What Are Title Loans?
A title loan is a loan that you get by putting your vehicle up for collateral. While this generally pertains to cars and trucks, some loan agencies also offer rv title loans and other alternatives. The loan agency takes the physical title of the vehicle and sometimes a set of keys to hold in good faith until the loan is paid back. This can also include having a lien put on your vehicle, which will be removed when the loan is paid off.
The amount offered through the title loan will be contingent on the value of the vehicle. In other words, a newer car or RV is going to open up more options than a ten-year-old truck that’s seen better days.
The Application Process
The application process for title loans is relatively straightforward. You submit an application that identifies your loan requirements, as well as some personal information and information about your vehicle. You may also be required to show proof of identity, proof of ownership, and other documentation.
For title loans, some providers do credit checks while others do not. Providers that do credit checks do so with your shared interests at heart. For them, receiving payment is easier and more cost effective than having to repossess your vehicle and selling it to recoup their losses.
By ensuring that you have a healthy credit score, they see that you’re more likely to be able to pay it back rather than risking the loss of your asset. Even so, those who have bad credit are more likely to receive a title loan than other types, due to the collateral being offered.
Risk vs. Reward
As with any form of borrowing, there are pros and cons to title loans. The biggest risk is losing your vehicle due to failure to comply with the terms of the loan. It’s estimated that one in five title loan borrowers end up defaulting and losing their vehicle. This statistic is comparable to the number of students that default on their student loans each year.
One of the main benefits of title loans is that you are able to get cash quickly. They are also short-term, which often means less expense in the long-run. However, because they are short-term, they also have high-interest rates in most cases. Additionally, you’ll need to know that you can pay the money back within that time frame to keep your vehicle. This is standard for many types of short-term loans, including payday loans.
As with any type of loan, the provider matters. Look for someone reputable that has a proven track record of being a stand-up company. Watch out for loan providers that use the term “title loan” but offer something different.
Even though title loans are meant to be quick solutions, it’s important to take your time and understand the process. Look for a provider who is transparent and willing to tell you the good and the bad about how their loan process works. Get information about interest rates and fees up front.
Title loans are effective for those who need a large infusion of cash to hold them over for a short period of time, such as surprise medical bills or unexpected house expenses between pay periods. Be a smart borrower and look at all of your options before making a decision.