Humans have been using what we would today recognize as loans since the Middle Ages when farmers borrowed money to purchase land. Likely, the industry of lending goes back even further than this, showing us that since the invention of currency, people have been finding ways to get more of it in advance.
In today’s world, loans are often entirely necessary evils. Financial emergencies like medical bills, a car breaking down, a pet needing emergency care, or storm damage to your home can make it impossible to stay afloat and pay all your normal bills. For this reason, many people seek out fast loans that they can get, regardless of their credit status or their ability to put down a deposit. There are several types of loans that can be obtained even with bad or no credit history, and no down payment. But how do you know which is right for you? Let’s compare three of the most common ways that a person might get fast cash: Car Title Loans, and pawn loans.
When you take an item into a pawn shop to “pawn” it, you are essentially getting a loan on the item. A pawnbroker will seize the item, and offer you cash based on the value of the item. A pawned item can be bought back for regular payments plus interest, or borrowers can forfeit the item after the loan term has expired, which essentially means you’ve sold your item for the amount you borrowed, and it no longer belongs to you. At this point, the pawnbroker will sell the item.
Many people get loans this way with valuable luxury items like jewelry or electronics because it’s not vital that they hold on to the item for the duration of the loan. It’s not wise to seek a pawn loan on a vehicle unless you have multiple cars, and can afford to sacrifice one of them until you pay back the loan. Pawn loans are a favored option for those who are in a jam but don’t know if they will be able to pay the loan back. The only thing they risk is the item that was pawned, rather than their paycheck or their vehicle title.
Car Title Loans
Car Title Loans allow borrowers to put their car’s title up as collateral on a loan. The loan offered by auto title lenders is usually limited only by the value of the vehicle, and borrowers keep their vehicle for the entire duration of the loan. Borrowers will need to demonstrate their ability to repay the loan and don’t have to have any item of particular value in order to get a large enough loan to cover a serious financial emergency.
These loans are paid back with interest, usually over a short payment period. Car Title Loans don’t tend to carry penalties for paying off early, and most lenders can work with your budget to ensure that payments are affordable. When the loan is paid, the title returns to your possession. These types of loans are great for people who don’t receive regular paychecks (such as freelancers or temp workers), and for people who need a larger loan without a great credit score.
Choosing the Right Loan
The good news about all of these loans is that they don’t require a good credit score, and don’t require a down payment. The loan can be had for the collateral of your next paycheck, a valuable item, or your vehicle’s title. Choosing between each of these loans is a matter of considering your needs and ability to pay back the loan.
Consider how much money you need. When you are looking at a high-interest loan, it’s best to borrow only (and exactly) what you need. Borrowing too much will leave you paying back more interest; borrowing too little won’t solve your financial crisis, and you’ll be paying back interest on a loan that didn’t really help you in the long run. You may need a large amount to cover a serious financial crisis, or you may simply need cash to cover your regular expenses when your paychecks are too far apart for comfort.
Consider your assets. If you own your vehicle, then an auto title loan may be your best choice for a personal loan. This is one of the few loans that provide a large loan amount without the backing of good credit history. If you don’t own your vehicle, a pawn loan is your next best choice. You’ll have to dig for truly valuable items that you can afford to part with for a time.
Consider the risk. The least risky option of the three is the pawn loan because if you cannot make the payments, you simply lose the item you pawned. However, you also run the risk of being shortchanged. No pawn lender will lend the full amount of the value of an item, because they are counting on selling it later to turn a profit. Be prepared to haggle with a pawnbroker, or to seek out several pawn shops until you get a good offer. Alternatively, Car Title Loans can have riskier consequences. Auto title loan companies try to work with borrowers to avoid repossession, but that is the final resort. Once repossessed, they will sell the vehicle, and pocket all of the proceeds from the sale.
The Bottom Line
At the end of the day, these types of loans really aren’t that different. They each utilize a particular type of asset (paycheck, valuable item, car title) as collateral for a limited loan, based on the value of the asset. They each loan to borrowers who have low or no credit scores and no down payments to secure a loan with. They each offer people a way to cover a financial emergency in a matter of hours, or even minutes, as opposed to days or weeks.
Once you’ve considered how much money you need to borrow, how you plan to pay the loan back, what type of asset you have for collateral, and what type of risk you are willing to take, you’ll be able to choose the best auto title lender for your situation, and get back on your feet in no time.