Basically, a title loan is a type of short-term loan that comes with a higher rate of interest. This requires that you present your car as collateral. So, if you don’t enjoy an impressive credit rating but you still want to take a loan, we suggest that you consider a title loan. In this article, we are going to introduce you to this concept. Read on to find out more.
What Is a Title Loan?
First of all, this type of loan allows you to pledge your vehicle as collateral. If you don’t pay back the loan on time, the lender may take your car from you. Typically, these loans are short-term and require you to pay a higher amount of interest.
So, if you have a poor credit rating, you still have a great opportunity to qualify for the loan. Most lenders won’t even consider your credit rating and history.
How Does it Work?
First of all, you need to find a lender that offers title loans. As long as you have a vehicle that is registered in your name, you may be eligible for this service. Before submitting your application, your lender may need to see your car, your license, and proof of ownership.
As soon as your application is approved, you will receive the loan money by handing over your car title. Although the loan terms will be determined by the lender, most title loans feature 30 days of terms.
In other words, once the loan period comes to an end, you will pay back one lumpsum payment. You will pay back the principal amount plus all of the fees and interest. Most of these lenders charge a fee of 25% per month of the loan amount.
This is the reason title loans are not suitable for everyone. If you fail to pay your loan on time, know that you will lose access to your car. Therefore, if you want to take out this type of loan, just make sure that you will be able to make payments on time. After all, you don’t want to risk losing access to your favorite car.
The Maximum Loan Amount
As far as your loan limit is concerned, 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 maybe $10,000 or more. In most case, it’s under $10,00 but some people borrow more to meet their needs.
According to the reports released by the Consumer Financial Protection Bureau, 1 out of 5 title loan borrowers fails to pay their loans back and lose access to their vehicles. Usually, they take out more loans in order to cover their previous loans.
Long story short, this was an introduction to title loans. If you want to take out this type of loan, we suggest that you consider the information given in this article. This will help you make an informed decision.