Car title loans can provide a simple and quick solution when you need to obtain cash quickly. Title loans are especially attractive if you have had credit issues in the past, which have left you with fewer borrowing options. However, it is important to fully understand this type of finance and avoid making a costly mistake.
How Title Loans Work:
The principle behind title loans is actually very simple. If you own a vehicle, you can use the title as collateral for the loan. The amount of car title loans is determined by the value of your vehicle. This means that the lender has the confidence that should you default on the loan, they can still recover the balance from your vehicle. Most lenders will not allow you to borrow the full value of your vehicle. Typically, you are likely to find that auto title loans online options allow for borrowing up to 50% of the vehicle value. Therefore, if your vehicle is worth $7,000, you would be able to borrow $3,500. However, if you are still making payments for your vehicle, the figure will be determined by the equity contained in the vehicle. For example, if your vehicle is worth $7,000 but you still owe $2,000 on your vehicle finance, you will only have access to $5,000 equity and at a 50% ratio, you are likely to be able to borrow up to $2,500.
The Benefits of Car Title Loans:
The main benefit of car title loans is that lenders will typically not require a credit check. The loan is based on the security and collateral provided by your vehicle. This can be a very attractive feature if you have poor credit. However, while the loan is in place, you can still keep driving your vehicle and simply make your loan payments as agreed. There will be an interest charge or fee associated with title loans, but this is typically explained before you agree to the loan, so you are aware of exactly what you will be paying and the total cost of the loan.
Potential Pitfalls to Avoid:
While you may immediately see title loans as the perfect method of obtaining the cash you need, there are some potential pitfalls which can lead to costly mistakes. It is worth taking the time to research your options for auto title loans online. There are a variety of lenders offering car title loans, and each deal will have a different interest rate and specific terms. You should compare rates to ensure that you are not paying over the odds. You should carefully read the terms and conditions to ensure that there are no hidden fees or charges that would be an unpleasant surprise. Additionally, don’t be tempted to borrow more than you can afford to repay. If you fail to meet your repayments, the lender could repossess your vehicle and sell it to settle the loan balance.
If you would like to know more about the benefits of title loans, contact us. We would be happy to discuss your particular circumstances and assist you in finding the deal best suited to your specific requirements.