No one likes asking friends and family for money. Plus, getting the funds, you need via traditional kinds of credit (like a credit card or personal loan) might not be possible.
Do you own a car and are pressed for cash? If so, you might qualify for a car title loan.
What is this kind of allowance? How do auto title loans work? What are its pros and cons? We’ll answer all of your burning questions and help you decide if it’s the right kind of credit for you to seek.
Car Title Loans: How Do They Work?
Title loans: how do they work? It’s a process that sounds complicated initially but makes much sense once you become familiar with all the steps.
An auto title loan allows you to get the money you need quickly. It lets you borrow funds to cover unexpected life expenses. The loan period is usually about 15-30 days, but the time may vary based on what your creditor offers.
How Do You Qualify for Car Title Loans?
To qualify for one, you must have equity in your car. In most cases, you won’t get a car title loan if you have a loan outstanding on your vehicle.
So, you must be free and clear. In other words, you must be the sole owner of your vehicle, and no other creditor can have a claim on it.
Do You Get to Keep The Vehicle?
One of the burning questions you may have is: Do I get to keep my vehicle, or will I have to rely on public transit for the next month?
One of the best parts about auto title loans is that you can keep your car. Your lender won’t take your car away from you while you’re paying off what you owe. They will take ownership of the title, but you can drive your car as normal. The lender will carry your vehicle’s title until you pay the loan back in full.
Remember that some lenders won’t take any other precautions — but others will. Prepare for a lender to install a GPS tracking device on your vehicle. This measure will help them keep tabs on your car and ensure you don’t try to drive off to another state and default on your agreement.
Some lenders may request a copy of your keys. If you default on your payments, a driver could come to your house and drive your vehicle off to sell it at an auction.
Lenders take these precautions to protect themselves from untrustworthy borrowers.
How Much Can You Borrow?
After you find an online title loan lender and are approved, car owners usually get about 25% to 50% of their car value. The average auto title loan typically ranges from $100 to $5,500. This wide range means you can even get a credit on an older, beat-up vehicle.
Do you have a higher-end car? Depending on your lender, you may be permitted to borrow up to $10,000 or even more.
The loan amount that a lender is willing to give you will depend on:
- Your vehicle’s value
- Your vehicle’s condition
- Your state of residence
A one-year-old Range Rover with under 20,000 miles will qualify for a larger sum than a 2004 Toyota Camry that has racked up 200,000+ miles. However, both can serve as collateral for a car title loan.
How to Apply for a Title Loan
Applying for this loan is pretty simple. All you need is 15 to 45 minutes to complete the application.
The application requirements are consistent among all finance lenders. Here is what you can expect it to look like:
- Assemble all relevant documents, including your ID and vehicle’s title. Some states require proof of residency, vehicle insurance, and income.
- Drive your vehicle to a creditor’s store and let one employee inspect it and pinpoint its value.
- Complete your loan paperwork and sign it.
- Leave the location with your money.
Tips to Follow When Reviewing Your Contract
You might need a way to quickly access funds with a bad credit rating. But don’t be so quick to sign your name on any dotted line. Ensure you understand everything you agree to.
Borrowers can protect themselves by following these two essential tips:
- Review the loan terms: Read through your contract thoroughly and understand all of the loan terms. Ask your creditor to clarify any details that don’t make sense. Be aware of charges like document fees, processing fees, late fees, lien fees, and loan origination fees.
- Watch out for “add-ons” that can increase your loan’s cost: The cost of your loan doesn’t end with the above fees. It may also require “add-ons” like an auto roadside services plan.
How Do Title Loans Impact Your Credit Score?
Lenders will not run a hard credit inquiry, which is great news for your credit score. If they did run this kind of inquiry, your credit rating could fall by several points.
You also don’t get rewarded for paying your title loan back. Lenders won’t report your repayment activity to the major credit bureaus so you won’t notice a positive increase either.
However, most borrowers don’t mind this aspect of title loans. They consider them to get money even if they don’t have the best history of paying funds back.
The Downsides to Title Loans
Before you go out and borrow funds on a title loan, it’s only fair to consider the potential downsides.
Auto title loans are expensive
A title loan means many things: quick access to money, the ability to keep your car, and a short repayment period. One thing auto title loans don’t stand for? Frugality.
Auto title loans aren’t cheap. They come with an annual percentage rate of 300%. This statistic is shocking, as a credit card typically comes with only a 24% APR.
Borrowers usually repay these short-term loans within a month to divide the 300% APR by 12. That calculation means you’ll owe an extra 25% per month.
Imagine you secure a loan for $2,000, and the APR is 300% or 25% per month. By the end of the 30-day period of time, you won’t only owe $2,000. You’ll owe a hefty $2,500 payment because of the interest rate.
Aside from the high-interest rates, creditors may require borrowers to pay additional fees.
Auto title loans can lead to never-ending debt
Auto title loans aren’t only expensive. They can lead to cycles of debt.
Imagine a different scenario. We’ll use the same initial $2,000 loan amount from above, but the circumstances have changed. At the end of the 30 days, you cannot pay the full $2,500 amount back — you only have enough to pay back $500.
Your creditor can offer to renew or rollover your loan. This new credit will add additional costs and interest to the money you already owe.
Let’s assume you opt for the rollover. The $2,000 that you still owe will roll over into a new loan. After the second 30-day cycle, you’ll have paid $1,000 to borrow $2,000 for 60 days.
In many cases, borrowers end up paying more in fees and interest than the initial loan amount. It’s important to understand how this short-term loan can snowball quickly into unmanageable debt if you aren’t careful.
Your car may get repossessed if you fail to pay your loan back
If you get a title loan and can’t pay it back, your creditor may repossess your car.
This scenario can cause you to end up in a situation that’s worse than where you started. You could lose your way of getting to and from work, which can make it all the more difficult to pay back what you owe.
Before you enter into an auto title loan, ensure you can make your payments timely. If not, you shouldn’t risk losing your vehicle.
Making partial payments sometimes isn’t enough to prevent repossession. A financial lender can repossess your car if you don’t follow the plan as outlined in your initial agreement.
Let’s say you’re in a tricky spot and find yourself facing repossession. You might be wondering, Can I recover my vehicle from repossession?
If a lender decides to repossess your car, you shouldn’t panic instantly. There are a couple of things you can do to keep your vehicle:
- Pay the loan back in full: You can pay the money back in full, but you have to do so quickly before your vehicle sells at an auction.
- Reinstate your loan: If you’re struggling financially, you can reinstate your loan and work out a new payment plan.
Comparing Title Loans vs. Other Options – Installment Loans – Payday Loans
Title loans may be ideal for your current situation, but they aren’t well-suited for everyone. They can lead you into a vicious cycle of debt and worsen your financial situation.
Consider some of the most popular alternatives.
An installment loan (also known as a personal loan) occurs over a much more extended period.
A personal loan comes with a fixed term and interest rate.
You pay monthly; the loan usually lasts between six months and three years.
You can get a secured or unsecured personal loan. An unsecured loan doesn’t require collateral (like your house or car). However, you typically need a higher credit rating to qualify for this loan.
Borrowers with poor credit history can more easily acquire a secured loan. Remember that you must provide some pledges, like your savings or investments.
A payday loan works similarly to a car title loan, but the repayment period differs. A borrower must repay the loan by the time they get their next paycheck.
Payday loans offer the shortest repayment periods, but this length comes at a price. Their interest rates could be upwards of 600% APR, depending on what kind of creditor you go to.
Ask Friends or Family for Help
Some people want to avoid asking friends and family for financial help at all costs. It can be uncomfortable and create awkward power dynamics. However, this lending can help you avoid costly APRs and credit services. You may be able to repay borrowed funds on more reasonable credit terms.
Discuss all the details with your friend or relative before you settle on an agreement. Ensure both parties are comfortable with the terms and keep the credit agreement separate from your relationship.
A credit card comes with a fixed APR that’s much lower than that of an auto loan. With a credit card, you can make minimum monthly payments without putting your personal belongings at risk. However, credit card debt can spiral if you aren’t careful, so you must use caution.
Conclusion — Is An Auto Title Loan Right for Me?
Ask yourself these three questions before you rush into this kind of loan:
- How badly do I need the money? You shouldn’t seek this kind of credit to splurge on a designer watch or pair of shoes.
- What are my other credit options? Can you use credit cards, personal loans, or other credit options with lower APRs? Can you borrow from friends and family?
- When can I realistically pay back what I’ll owe? Do you make enough money to pay back the loan you’ll borrow (plus the interest)?
How Do Title Pawn Loans Work With Max Cash Title Loans?
Still wondering, how do title loans work? Maybe we didn’t answer all of your questions, and you need help deciding if this financial decision is right for you.
We recommend reaching out to a representative at Max Cash. This convenient title loan service simplifies the application process and gets you secured funding faster.
To start, you’ll offer some information about your car. This information will include your car’s:
- Car make
- Car model
- Car style
- Approximate mileage
Then, you’ll provide some basic personal information like your:
- ZIP code
- Phone number
- Email address
- Monthly income
The website app will also ask you to verify that you own your vehicle. Then, it will provide you with a free credit estimate.
You will get in contact with a team member and follow these steps:
- Get your vehicle qualified.
- Submit all applicable documents (your ID, proof of income, insurance, and vehicle title).
- Receive your money via check, cash, or direct deposit.
When customers choose Max Cash Title Loans over other creditors’ services, they’ll benefit from:
- Nationwide coverage (New York is the only state it doesn’t cover)
- Approval even if you’ve declared bankruptcy in the past
- Approval even if you have a poor credit rating
- Access to your funds within 24 hours
Consider applying to this creditor today for competitive short-term lending services.