Car Title Loans: How They Work and What You Need to Know

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Car title loans offer many people a way to quickly get a short-term loan, but they’re generally very expensive. To get an auto title loan, you’ll need to put up your vehicle as collateral by handing over the title to the lender until the loan is completely repaid.

If you don’t have any other options—for example, you might need money now for an emergency medical bill—a title loan could make sense. In most cases, though, they end up being more expensive than they’re worth, and you’ve put yourself at risk of losing your car.

There are times in many people’s lives when they need to apply for a loan. Sometimes they are trying to consolidate bills. Other times they are planning to buy a new car or a home.

How Car Title Loans Work

If you need cash in a hurry, you may want to consider getting a title loan. They can be used to help pay unexpected medical bills, college tuition and other costs. In most cases, your loan is approved quickly and you’ll have the money you need in just a day or two.

How do title loans work? Title loans are loans placed against your car’s title. They are usually short-term loans for smaller amounts of money than most other kinds of loans. You are often required to pay back the amount of the loan, plus any interest and outstanding late fees or other charges that may be incurred. They are convenient for getting cash fast when you need it.

Here is everything that you’ll need to know about title loans:

1. You must be fully insured.

Most lenders require that auto owners be fully insured before they can issue any kind of title loan. This helps to keep the car insured in case of an accident or other issues. Some companies may elect to keep the car until the loan is paid if the vehicle is not insured. Lenders will also usually insist that there will not be any outstanding debts against the car to any outside parties. In other words, you must own the car free and clear and not owe any payments or debts or liens for repairs to auto dealers or other companies.

2. The amount of the loan depends on the borrower.

The amount of money you can receive for your title loan usually depends on the specific company that you’re working with. Some companies may loan more than others, and some may loan less than average. Other firms may loan the exact same amount to every client, no matter what their individual needs may be. This is why it’s important to shop around to get the best deal and rates that work for your situation and your budget.

3. Pay attention to the loan terms and conditions.

You should read the terms and conditions of any title loan contract carefully before signing it. Make sure that you understand things like the interest rate and the amount of time that you have to repay the loan. Some companies may allow extensions, but they are usually for a limited time. Pay close attention to disclaimers about what can happen if you fail to pay the loan on time. You may end up losing your vehicle to the title company.

4. If you fail to pay your loan, the lender has a legal right to claim your car.

While title loans can be convenient for some, they don’t come without risk. If you don’t pay your loan on time, the borrower has a legal right to your vehicle, according to the terms of the loan contract. Sometimes, you may be able to refinance the loan from the lending company. Consult your contract to see what options are available to you. Just keep in mind that refinancing can make the initial loan even more expensive.

5. Watch the APR.

The APR, or annual percentage rate, on most title loans is extremely high.Most APR’s are about 25 percent for a monthly loan. Calculated over twelve months, that’s an APR of 300 percent! There may also be additional fees tacked on, especially if you are late in repaying the loan. If you can pay the loan ahead of time, you’re going to save yourself a lot of money in the long run.

6. Title loans don’t have much impact on your credit score.

Most title loans are seen as debt. They are secured loans where your vehicle is offered up as collateral. Title loans usually do not require any kind of credit check. Unsecured loans have greater effect on your credit score than title loans. The only thing you can really lose is your car if you don’t pay the loan off on time.

These are the main things to know about title loans. Take your time to research offers carefully. Make sure you are dealing with a reputable company. For every legitimate lender, there are plenty of fly by night companies who offer deals that are usually too good to be true. Also, be sure to check the rules and regulations in your state, as title loans are not allowed everywhere. They can be a good way to gain instant access to funds when you need them. Just make sure you’re borrowing responsibly so that you can take care of your financial business and still keep your car on the road.

Brian Meiggs
Brian Meiggs
Brian Meiggs teaches people how to make better money moves. Whether your focus is to make more money, save more money or better manage your finances, having a series of money moves will support your financial goals. He recommends for all of his readers to use the free Empower app to manage their cash flow and net worth.


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