Title Loans: How Do They Work?

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Basically, a title loan is a short-term type of loan that comes with a higher interest rate. This requires that you present your car as collateral. So if you don’t enjoy an impressive credit rating but still want a loan, we suggest you consider a title loan. In this article, we are going to introduce you to this concept. Keep reading to know more.

What is a title loan?

First, this type of loan allows you to pledge your vehicle as collateral. If you don’t pay the loan back on time, the lender can take your car away. These loans are usually short-term and require you to pay a higher amount of interest.

So if you have bad credit, you still have a great chance of qualifying for the loan. Most lenders won’t even consider your credit score and history.

How does it work?

First, you need to find a lender that offers title loans. As long as you have a vehicle registered in your name, you may be eligible for this service. Before you submit your application, your lender may need to see your car, its license, and proof of ownership.

As soon as your application is approved, you will receive the loan money when you surrender your car title. Although the terms of the loan will be determined by the lender, most title loans have a 30-day term.

In other words, once the loan term is over, you’ll pay a single payment. You will pay the principal amount plus all fees and interest. Most of these lenders charge a fee of 25% per month of the loan amount.

This is why title loans are not right for everyone. If you don’t pay your loan on time, know that you will lose access to your car. So if you want to get this type of loan, just make sure you can make the payments on time. After all, you don’t want to risk losing access to your favorite car.

The Maximum Loan Amount

As for the limit of your loan, it will be between 25% and 55% of the price of your vehicle. The lender will take a closer look at your car to get an estimate of its value. The loan amount can be $10,000 or more. In most cases, it is less than $10.00, but some people borrow more to meet their needs.

According to reports published by the Consumer Financial Protection Bureau, 1 in 5 title loan borrowers default on their loans and lose access to their vehicles. They usually take out more loans to cover their previous loans.

Long story short, this was an introduction to title loans. If you wish to contract this type of loan, we suggest that you take into account the information provided in this article. This will help you make an informed decision.

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