Car title loans are similar to payday loans in that they provide emergency money quickly. The major difference between these two is that car title loans use your car as collateral. Car title loans have increased in use and popularity through the past decade. Consumers contemplating car title loans often are concerned that their bad credit will hold them back. Learn some important facts about car title loans.
What is a Car Title Loan & How Does it Work?
A car title loan is almost exactly as its name implies. It’s a loan that is given to a consumer with the consumer’s car used as security or collateral. Unlike conventional loans that offer loan terms from as short as a couple months to five years or more, car title loans are for short periods of time, usually about a month.
We talked with TitleBucks, and they said, “Unlike conventional loans that are contingent on your credit scores, car title loans do not require good credit. About all that’s required to get a car title loan is a completed application and a car with a clean title. In other words, the car cannot be already used as collateral on another loan. When the consumer signs the application and receives the money, he or she must give the title to the car title loan company to hold as collateral until the loan is paid in full.”
What are the Pros and Cons of a Car Title Loan?
As with any type of loan, there are pros and cons, and car title loans are no different. Most of us have financial difficulties at one time or another or come across a situation where we could use some extra cash quickly. Car title loans can seem like a lifesaver to the consumer who owns a car and knows he or she will have no difficulty paying the loan back.
They’re quick and fast. In most cases, the consumer has the money in their account on the same day. The money may be used for unexpected car repairs, household expenses, birthday gifts or holiday shopping. When the loan is paid up, usually in a month, the consumer gets the car title back. One of the biggest advantages of car title loans is that they’re available even to consumers who have bad credit.
The flip side of a car title loan is that it can be very expensive even if it is just a short-term loan. They typically come with some pretty high interest rates. According to the Consumer Federation of America, car title loans often charge interest rates in the triple digits. For the individual who just had a unexpected emergency but otherwise is financially stable, this doesn’t usually pose a problem.
However, a consumer who is suffering from severe financial troubles may have difficulty repaying the loan. The car title lenders are often willing to roll over the loan for an additional month, but this will result in more interest.
Facts to Keep in Mind When Getting a Car Title Loan
Consumers who get car title loans are urged to use the same considerations they’d use with conventional loans. Read all the fine print and know what you’re signing before you put your name on the dotted line. If there is anything about the loan that you don’t understand, don’t be afraid to question the lender.
Consumer.gov states that the lender is required by law to tell you what interest rate they charge and what your APR will be. The APR is the total amount you’re required to pay throughout the loan. Keep in mind also that they do have the legal right to take over ownership if you fail to pay the loan as promised.
Despite the fact that they charge higher-than-normal interest rates and are actually illegal in some states, car title loans continue to be very popular in the states where they are allowed and can be a great thing for consumers in need of immediate cash.
