You might be considering a title loan if you need some fast cash to cover an emergency expense, like a car repair or medical bill. With a title loan, you can typically get a lump sum of money quickly in exchange for using your vehicle as collateral. However, title loans are usually very expensive to repay and not the best option in most situations. Below, we’ll dive deeper into how title loans work and explain their pros and cons.
How do title loans work?
Often offered through online lenders or cash advance companies, title loans allow you to secure funds using your vehicle as collateral, which is something valuable you own. You’ll provide the lender with your vehicle’s title. Typically, there is no credit check for a title loan.1 However, the lender will ask for documentation to verify proof of insurance and complete a quick inspection of your vehicle.2
Depending on the lender, you may typically borrow anywhere from 25% to 50% of your car’s value.3 You’ll likely need to pay back a title loan with interest and fees in around 15 to 30 days.4 You can still drive your car while you repay the loan, and once it’s complete, you’ll receive your title back.
Remember that if you fail to repay your title loan, the lender has the right to take your vehicle and sell it to recoup their losses.
Pros of title loans
Below are some of the benefits of taking out a title loan:
● No credit check: You may get approved for a title loan, even with less-than-perfect credit. This can be reassuring if you’re having a hard time qualifying for other types of financing.
● You may continue to drive your vehicle: You can keep your vehicle and use it to get around like you’re used to. Since you likely depend on it to get to work, school, and/or errands, this is an important perk.
● Quick funding: Most title loan lenders offer fast funding. You’ll likely receive the funds that same day or as soon as you get approved.
Cons of title loans
While a title loan may seem like a good choice when you’re in a financial bind, it should be a last resort due to these drawbacks:
● Very costly: Title loans usually come with triple-digit interest rates. If you can’t repay your loan on time, you may roll it over into a new one and find yourself in an ongoing debt cycle. Title loans are also illegal in some states due to their high expenses.5
● Short repayment terms: Typically, you’ll be required to repay a title loan within 15 to 30 days. This is short when you consider that traditional loans offer much longer repayment terms, which may be anywhere from a few months to a few years or even longer.
● Risk of repossession: If you fail to make your loan payments, the lender can repossess your vehicle. Repossession can make it difficult to travel where you need and want to go.
Consider alternatives
Even though title loans are easy to qualify for and offer fast funding, they’re expensive and risky. If possible, you should consider alternative financing options like personal loans, home equity loans, or loans from friends and family. Go with the most affordable solution for your unique situation and needs.
Notice: Information provided in this article is for information purposes only and does not necessarily reflect the views of bluelinebiz.com or its employees. Please be sure to consult your financial advisor about your financial circumstances and options. This site may receive compensation from advertisers for links to third-party websites.
Sources:
1, 2, 3 https://www.investopedia.com/articles/personal-finance/110714/car-title-loan-requirements.asp
4 https://consumer.ftc.gov/articles/what-know-about-payday-and-car-title-loans
5 https://www.bankrate.com/loans/auto-loans/car-title-loans/#what