28 Aug 2018   /   0 comments

What is a car title loan and how does it work

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what is car title loan and how does it work

Car title are a short-term loan that people in need of quick cash can easily access. This type of loan requires the borrower’s vehicle title as collateral on a relatively high interest loan. This type of loan is a good last resort for people who need quick cash and have a clear title to their vehicle. The lender closely looks at the car worth, the ability of the borrower to pay and other factors that will enable the lender to decide if the amount the borrower seeks is viable. Car title loans can also be called pink slip loans and they cater especially to the subprime market and bad credit borrowers and for this reason they carry high interest rates and fees to balance out the risk of lending money to high-risk borrowers.

Title loans didn’t just take flight recently, they have been in existence for a quite a while and to put figures to it; the 1990’s. They have since become very famous too. These loans are secured loans that required one to use its vehicle as collateral for securing loans. What the lender does is to provide a lien on the car’s title and then the borrower is to surrender the hard copy of the car’s title against the agreed loan amount pending when he is able to pay up.

Once the borrower is able to pay up the loan, the lien is removed and he gets back his hard copy of the car title. If the borrower is unable to make payment as at when due, he would be required to forfeit his car and the lender gets his money back by selling off his car. This will however worsen the borrower’s credit score. Title loans do not require lengthy processes like traditional financial institutions. They are faster to process and require largely less than 24 hours on an average. Title loans do not require credit scores but a readily available vehicle for collateral and for this reason, people with bad credit can still secure a loan via title loans. Due to its faster method of processing and approval, a lot of people prefer title loans to other types of loan.

It is an established reality that getting a loan would assist us with our financial needs and most times loans are always last resort when there seem to be no other way out. Taking out a car title loan is quite an easy way out when all other traditional means of lending seem very impossible since it does not require credit checking to have access to the loan. Pay day loans are also helpful when there is a financial emergency that needs to be sorted out just that the loans are expected to be paid back right away. When the borrower is unable to make full payment as when due they can make a rollover of their loans and this may cost them more on a long run. These kinds of loan are meant to be for a short term in order to provide a temporal fix for providing a temporal fix for one’s finances.

Lenders that give fast cash such as pay day lenders grant you a loan on the basis of the borrower’s job and his income hoping that the borrower would pay back with his next paycheck. The lender gives the loan based on how much the borrower makes as well as the capped amount that the state determined the lender can loan in. Car title loans are given based on the value of your car and car title loan lender requires that you own the car and over the pink slip till you are able to make full payment back. Car title loans and auto title loans have become very popular in that a person is able to borrow up to $5000 on the basis of how much equity your car holds. The process to achieving this is quite fast and simple without too much protocols involved.

Using your car as a collateral can be dangerous because if making the loan payment becomes difficult, the lender reserves the right to re-possess the borrower’s car and probably sell it to make up for defaults on their payments. Interest rates on this type of loan is higher than what might be required by a traditional financial institution and in some cases, payday loans. The APRs, that is, annual percentage rates can be as much as 250% which can leave the borrower in a terrible mess should he have an issue with making payments as at when due. It must also be noted that these loans are for a short-term basis when compared with loans taken from banks and there is nothing like years to pay back- they are largely for a month to a few months. With its reputation as a predatory lending system generally given by consumers, car title loans have become the subject of detailed reports put out by non- profit organizations like Consumer Federation of America (CFA) with these organizations seeking to inform consumers about the explicit dangers of such loans.

You should therefore be watchful of the deceptive practices used by some lenders in the subprime market. For most borrowers that would be in a hurry to sign on the dotted lines without reading through because they are in dire need of money, they could be caught up in a web of debt because of the high interest rates, rigid terms and mode of payment which could have been seen early on. It would thus be better to weigh your options, do your research and find out the lenders terms that best suits you. Read all you need to and ask about the interest rates that would be required of you and what happens at the end of the bargain. Discover a reputable company that needs you to pay a percentage of the actual loan with every installment so the payment doesn’t become too much or cause you to have a rollover on your car loan. Since most of us require are cars to work or get to our destinations, losing your car to a lender by means of repossession can be a huge problem. This will make commuting harder and your financial situation worse. It is therefore apt to say that it is wise to weigh the benefits and losses of taking out car title loans.

 

Getting A Car Title Loan

To get a car title loan is quite simple, all you need to do is to apply with your car’s title and some other relevant documents. The lender assesses your car and its value offering you a loan value based on your car’s value. Most title loan lenders might offer up to 50 percent of your car’s value and the loans offered is never based on your credit check as your credit history will not hinder you an access to the loan. It is very important you go through the lenders terms and conditions before I agreeing to take the loan so as to prevent unforeseen situations and this in return gives you a perfect understanding of what you are going in to.It is also important to note that the processes involved in applying for a car title loan are very simple and quick compared to traditional loans. The loans are processed the same day you applied for them that implies you would walk out with your cash in a short time period.  This may come to your aid when you have an emergency or an urgent bill to pay up. Title loans have proven to be a life a saver when one is a fix to meet emergency needs.

Every car title loan lender expects the borrower to hand over the car title and not the car itself meaning you get to hold on to your car and drive it for the duration of the loan.  The only time you stand a risk of losing your car is when you are unable to meet up with your loan payment. You might lose the possession of your car. Although, this happen in just few situations between 5 to 10 percent of the time, so there is a great probability that you can avoid such situation. As important as it is to get a loan to meet your emergency needs it is also very pertinent you have a payment plan and pay it back on time.

There are so many benefits to car title loans. Emergencies that have been incurred without cash at hand can be easily taken care of with this kind of loan. In whatever way the situation or emergency presents itself, whether it is medical, home, legal education or any other unforeseen issue that may arise at the time, it becomes a quick fix. It also renders help to a distressed economy. America suffered a recession from 2007 to 2010 with unemployment rate reaching the rate 10% according to Economagic which was responsible for tracking this data. A lot of people were left with the need to bridge gaps between jobs and staying afloat. For this reason, a lot have turned to car title loan to enable them stay afloat. It is also worthy to note that without anticipated cash increase, these loans may not be the best option. It is also of benefit because people with bad credit or not enough credit score than access this title loan which would otherwise have made it impossible from them to borrow from traditional lenders like banks or credit unions. Instead, by using a vehicle as collateral for the loan, there is no need to get assessed for credit score.

The lender just uses the equity of the vehicle to decide how much he would be loaning to the borrower. Since it is easy to get the cash a quickly without a credit check it is comprehensible why a lot of people would seek this option more. To add to everything else, the process is quick and painless. There is no hassle or stress whatsoever and for this reason a lot of people turn to this sort of loan. If one has been dealing with a lot an requires quick cash as a matter of emergency, it doesn’t take so much more. It only takes about a couple of hours. For people who have little or no credit, lending options can be scarce and that is a risk that should be taken account of when seeking a title loan. However, if this person is struggling to get on his feet and can manage a short-term debt, this loan can be a solution to the problem. Just make sure you research to be sure what you are in for as regards the lender, his terms of the loan and mode of payment before setting out to borrow.

In conclusion, the most important thing you need to know about this loan is that it has to be paid back. It is just a temporary loan that is meant to help you get through that emergency or tough time. To this end, it is wise to go for a payment plan that you can afford and manage. The best part is, this loan can easily get approval and credit is not a problem as much simply because you have a collateral to support the loan. Most states require the lender of the loan to hold the borrower’s vehicle for a duration of 30 days to enable the borrower have time enough to pay the balance of what he owes. Peradventure the borrower fails, he then sells the vehicle and if the amount sold is higher than the amount owed, the balance is given the borrower. For this reason, the borrower is loaned money based on what his vehicle is worth and the lender typically looks up the auction price of the vehicle to help him decide to give a loan worth the vehicle. This in turn gives them a profit margin should in case the borrower is unable to pay back and the vehicle has to be auctioned. It is therefore best to borrow what you can pay back and endeavor to pay back what you owe.

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