Six Important Facts About Getting A Title Loan
In today’s lending environment, borrowers have access to a number of different standard and alternative loans, and a person’s unique circumstances may influence the type of loan that would be best. One type of alternative loan that has become popular in the post-recession environment is a “title loan,” which is also referred to as a pink slip loan or an auto title loan.
This type of loan allows the owner of a vehicle to put a car up as collateral in exchange for a loan. Before deciding upon this type of lending, a borrower must understand the risks and advantages of a title loan.
1. Title loans are short-term lending: Unlike a personal loan from a bank, which might require payments for several years before the balance owed is satisfied, the duration of payments for a title loan is typically much shorter. Sometimes a title loan might be due in just a few months, and the overall loan term is often just three months.
2. Good source for micro-loans: A traditional lender, like a bank, will often have a minimum loan amount of around $1,000, and applying for a larger loan than is necessary doesn’t always make good financial sense. Sometimes title loans are approved for as little as $100 so convenience may play a role in a borrower’s decision to seek out a title loan.
3. Quick approval in exchange for high interest: Title loans don’t require good credit, and they’re also approved in a matter of minutes, while traditional personal loans might take days or weeks for approval and are never granted to someone with tarnished credit. A title loan is based upon the condition and value of the vehicle rather than the condition of the borrower’s credit. However, the ease with which a person can obtain a title loan is balanced with a higher interest rate.
4. Repossession typically a last resort: The process of repossessing a car is expensive and takes time. Although a borrower does take the risk that his or her car could be taken to satisfy an unpaid title loan, title loan lenders usually only use this option as a last resort. The convenience of a title loan and the ease with which this type of lending may be acquired must be balanced against the risk of losing the vehicle due to missed payments.
5. Online applications have become popular: Although most title loan companies eventually require an in-person signature as well as the temporary transference of the hard copy of the car’s title, most title loan companies offer approval through the internet or over the phone. Loan approval is fairly hassle-free as long as the borrower has told the truth regarding his car’s condition and owns the title.
6. Emergency lending option: One of the features touted by title loan lenders is the immediacy of funds availability when compared with other sources of lending. For an individual who cannot rely upon family members when a financial emergency arises, a title loan may be the best option.
The laws regarding title loans tend to vary in most states, and they aren’t available in every location. Although title loans carry more risk than traditional lending sources, a borrower may consider this type of loan in certain circumstances where bad credit has been a barrier for approval.