Introduction
Another type of a short-term loan that is common among the clients is a title loan. These loans are based on the borrower’s vehicle title and thus enable people to get funds fast even if they have a poor credit rating. But, like the payday loans, title loans also have their drawbacks, such as high-interest rates and the loss of car possession in case of a failure to repay. In this article, we will look at the advantages and disadvantages of title loans and help you decide whether they are worth it.
What Are Title Loans?
A title loan is a type of secured loan in which the borrower uses the vehicle’s title as the guarantee for the loan. As security for the loan, the title to the car, truck or motorcycle is retained by the lender until the loan is paid off. The loan amount is expressed as a percentage of the car value, and the car can be used by the borrower even as he pays off the loan.
Title loans are usually taken when all other financing sources have been exhausted since they attract very high interest rates and are usually repaid within 15 to 30 days. However, some of the lenders provide longer repayment periods.
How Title Loans Work
The process of securing a title loan is relatively simple:
- Application:
Customers apply for the loan by surrendering their vehicle title and identification and proof of income. Some lenders may also do a quick appraisal of the vehicle to establish its worth.
- Loan Amount:
The amount of loan is therefore dependent on the value of the vehicle as appraised. The majority of the lenders give loans that fall between 25% and 50% of the value of the car. For instance, if your car is worth $ 10,000, then you may be eligible for a loan of $ 2500-$ 5000.
- Loan Agreement:
Once approved, the borrower signs an agreement outlining the loan amount, interest rate, fees, and repayment terms. The lender holds the title as collateral, and the borrower continues to drive the vehicle.
- Repayment:
The loan must be repaid, along with interest and fees, by the due date. Some lenders allow for rollovers or extensions, but this can lead to increased costs and a higher risk of losing the vehicle.
The Pros of Title Loans
Title loans offer several advantages, particularly for borrowers in urgent need of cash or those who don’t qualify for traditional loans:
Fast Access to Funds:
Title loans provide quick cash, often within 24 hours of applying. This makes them an attractive option for individuals facing financial emergencies such as medical bills, home repairs, or other unexpected expenses.
No Credit Check:
Since title loans are secured by the borrower’s vehicle, most lenders do not perform credit checks. This means that even individuals with poor or no credit can qualify for a title loan.
Continued Use of the Vehicle:
Despite using the vehicle as collateral, borrowers can continue driving their car during the loan term, making it a more convenient option than pawning personal belongings.
Simple Application Process:
The requirements for a title loan are minimal. Borrowers only need a clear vehicle title, proof of identity, and proof of income, making the process much faster than applying for a traditional loan.
The Cons of Title Loans
While title loans may offer a quick fix, they come with substantial risks and downsides:
High Interest Rates and Fees:
Title loans are generally more expensive than conventional loans in terms of interest rates with the APRs ranging between 200% 300% or more. Also, there are other charges that include processing fees, late payment fees, or fees for rolling over a loan.
Risk of Losing Your Vehicle:
In case you fail to pay the amount owed on a title loan, the lender is legally allowed to repossess the car. This can be very frustrating and even disastrous if the car is your only means of transport to your workplace or any other important business.
Short Repayment Periods:
Title loans are usually repaid within the time span of 15 to 30 days, which does not allow the borrower to repay the loan in full. This can cause a lot of stress to the borrower in case he or she is unable to repay the loan before the due date or in case the borrower’s financial position has not improved by the time the loan is due.
Rollovers and Debt Cycles:
In case the borrower cannot repay the loan on the agreed time, he or she can renew the loan for another fee. Although this may appear like a good option, it results in a vicious cycle of debt where borrowers keep on rolling over the loan and in the process, end up paying more in terms of interest and fees.
Bottom Line
Title loans are rather helpful for people who need money urgently but it is necessary to understand that there are a lot of risks. High interest rates, short repayment terms, and the possibility of losing your vehicle make title loans an unfavorable financial decision. However, before proceeding with the title loan it is necessary to look for all the other possibilities and learn all the necessary information about the title loan. At Larvin Advance Loans, we suggest you try to find a more secure type of borrowing such as personal loans or credit card cash advances and only then turn to title loans. Get the information you need and then decide on the financial decision that is most appropriate for you.