How Does A Title Loan Work And How Can You Get One?
A title loan is much different than most other loans and isn’t usually used unless there’s a major emergency. The title that’s used in a title loan is the title of a regular car, truck, SUV or motorcycle, and you need to have it in order to borrow the money you need.
There are several reasons people may use title loans such as not being able to get a personal loan from the bank, not having a whole lot of time to wait for the funds they need, and in some cases not having many other options to borrow an amount of about $1,000 or less. While a car title loan from a direct lender may help in the short-term, you should be wary about how you use one and if you can repay it.
The Basics Of How Title Loans Work
Car title loans are a little similar to payday loans, but instead of money borrowed based on a weekly or bi-weekly paycheck amount, they’re based on the value of a vehicle that they’re borrowed against. The vehicle that will be borrowed against will be appraised by the lender to determine its current market value, and the amount they’ll lend will usually be about 10-30℅ of that amount. At times lenders can loan up to 50℅ of a vehicle’s value depending on its condition. But there are three main qualifications you need to get a title loan:
- You need to own the vehicle completely with no outstanding payments due on it
- You must have the title and it must be in your name
- You’ll usually have to bring the vehicle to the lender’s store so it can be inspected
The Main Benefits Of Title Loans
What you can do with your title loan depends on who the lender is, what your state’s laws say and how much you borrow. But generally when you receive the funds from a title loan, they are either electronically transferred into your bank account, or you can receive then in cash, check or money order if the lender has that option. Here are a few things most lenders will also offer:
1. Approval not based on a FICO score
Some lenders do still conduct an alternative credit check to make sure you have a history of paying on time. But generally, they don’t rely as much on the report that the credit bureaus have on you. Others may not even conduct a credit check period.
2. You can usually count on receiving your money quickly
There’s no guarantee on how quickly you can get your money with every lender, but some do have quick funding options. Some electronic transfers can happen on the same day, or you can receive cash on the same day.
3. Sometimes you have cancellation options
In some states, you can actually cancel a car title loan free of fees and interest if you do so within a specified time period. That way if you change your mind and decide to use another option for short-term payments, you are free of title loan obligations.
The Drawbacks To Title Loans
There are some major financial risks to title loans that other loans don’t have, and because of these risks and the opportunities for predatory lending, there are many states that don’t allow title loans. Some states have strict laws about what lenders have to do to make sure borrowers know the risks, and certain states limit some of the finance charges lenders can make. But still, you should be aware of the following risks that are generally true of title loans:
- You are using your vehicle as collateral by giving the lender your title, and that means if you don’t make your payments on time they could repossess it
- You will usually be faced with high-interest payments for your loan that could be as high or higher than a 300℅ APR
- You will usually have to have the loan principal plus finance charges paid off within a month, although some states and lenders vary on that
The Rules For Lenders
Before you try to get a title loan from a lender who makes promises of borrowing a lot of money with it, you should check your state laws to make sure they are following them. Also, most states have licensing requirements that lenders have to follow and usually have a directory available online that you can find them in. Usually the attorney general’s office or a state financial regulation department will have a contact page if you discover a title lender violated a state law or don’t have an updated license.