In light of the current economy, a lot of people are facing financial hardships. The COVID-19 pandemic has caused a lot of workers to be furloughed or laid-off. Some jobs may never come back.
As people navigate through these trying times there may be moments of financial insecurity. What do people do when they need cash and their bank accounts are running on empty. Some are looking for short-term loans to tide them over.
If you own a car, a title loan may be the answer. How do title loans work to get the cash you need? In its simplest form, the car title is used as collateral to secure the loan. The process is quick and you’ll have the money you need the same day in most instances.
Car title loans are often used for people with less than perfect credit. In instances where there are no other options, title loans provide a financial lifeline.
Are you in need of cash and hold the title to your vehicle? Keep reading to learn more about title loans and how they differ from payday loans.
How Do Title Loans Work?
Getting a title loan is easy in most cases but you should check the laws regarding these types of loans to make sure you understand the legal liabilities. Title loans are not just for cars. You can take out a loan on most motor-operated vehicles including:
- Motorized Equipment (i.e. tractors, forklifts, etc.)
- Recreational Vehicles
The title is a legal document certifying ownership. The person taking out the loan holds full ownership of the title. If you had a cosigner make sure they have released all rights to the vehicle after satisfying any loan requirements.
Otherwise, they will need to sign for the title loan, as well.
How is it Different from a Payday Loan?
Title loans differ from payday loans in several ways. A payday loan does not require collateral. It is based on the amount of your income.
In most instances, a payday loan requires the borrower to have a bank account and payroll set-up for direct deposit. You may also be required to give the lender approval to withdraw funds via electronic transfer such as ACH or EFT on a certain date.
Payday loans typically are smaller amounts than title loans and must be repaid on your next payday or within 30 days.
What Will You Need?
Each lender will have a list of required documents needed to apply for the title loan. Below is a list of items you should be ready to provide.
- The most important is the car title.
- Proof there are no outstanding loans and if there is the amount. Some lenders will still issue a loan if you have a small amount owed.
- Documents showing your permanent residency. This can be a utility bill or other official documents mailed to your home.
- Your car insurance policy showing you have current coverage.
- A valid driver’s license.
- A copy of your most recent bank statement.
- An inspection of the car to ensure there are no defects.
Qualifying for a title loan is simple. Provide the required documents and demonstrate your ability to repay the money. You’ll receive an answer right-away along with the funds that you need.
If you do not have these documents it could lead to a loan denial.
Is it Wise to Use Your Car Title?
The decision to take out a car title loan should not be made without careful consideration. Title loans are not the same as regular personal loans. The terms will be shorter and the interest rates higher.
Title loans provide borrowers with alternative opportunities to secure a loan. These loans do not go against your personal credit, nor is there a credit check. If you abide by the terms of the loan you will find it easier to borrow in the future.
You will be required to provide the lender with the spare key and/or key fob. Some will require that a real-time GPS tracker or immobilizer be attached to the car. By doing so, they can track the car and stop you from driving it if the payment is late.
What Happens if You Can’t Repay the Loan?
Because this is a collateral loan if you fail to make payments on time or cannot repay the loan, the vehicle can be seized by the lender. Most lenders are in the business of loaning people money, not selling cars. If you experience difficulty repaying the loan it is best to contact the lender to see what options are available.
One solution is to refinance the loan. Keep in mind this will mean longer repayment terms which will make the loan more expensive.
The ultimate penalty is having the vehicle repossessed and sold. In this scenario, if the vehicle sells for more than what is owed to the lender the overage will be refunded to you.
The last alternative is you keep the car but the lender sues you for the balance of the loan, plus any interest and fees.
It is a Short-term Loan
A short-term loan is typically a loan that requires repayment in three years or less. The lender will determine the terms of the loan. This will include late penalties, insurance requirements, and interest rates.
Your interest rates on a title loan will be much higher than the interest rates on a regular bank loan. in the event, you have to refinance your title loan it may come with a higher rate.
Be an Informed Borrower
No need to keep wondering how do title loans work. Losing your vehicle for failure to repay a title loan can be devastating so make sure you weigh all of the pros and cons. These tips will help you navigate the system and make the best decisions for your financial situation.
Do you want to see what loan options are available to you? Click here to apply today for quick and easy no-credit loans.