Car Title Loans: Good or Bad?
If you need money fast, you might consider offering your car as collateral for a short-term loan. If you agree to a car title loan, the lender will place a lien on the car's title. If you stop making loan payments, they can repossess your car. For borrowers, car title loans have advantages and disadvantages.
Advantages of Car Title Loans
Unlike other types of financing, car title loans don't have a complicated or lengthy approval process. Since you are offering a form of collateral, car loans are relatively easy to qualify for, even if you don't have the best credit score. In fact, many lenders will provide car title loans without checking your credit score or report. As long as you can show that you have a reliable source of income, and a car worth more than the loan you are requesting, typically the lender will approve your loan application.
Car title loans are also an excellent option if you need money immediately. As soon as you and the lender agree to the loan amount and terms, you can receive your cash quickly. In many cases, you walk out of the lender's office with the money in hand on the day you apply for the loan.
Finally, because the lender places a lien on the car's title but doesn't keep the vehicle itself, you can continue to use the vehicle while making payments on the loan. You will lose use of the vehicle only if you default on the loan and the lender repossesses your car.
Disadvantages of Car Title Loans
Car title loans often carry high-interest rates. In some cases, these rates are significantly higher than credit card rates, and may even exceed 100 percent. While a few states have laws that prohibit exorbitant interest rates, many do not. Car title loans are also short-term loans, which means that they must be repaid quickly. If you are unable to make payments, late fees raise the balance even higher. Eventually, the lender repossesses your vehicle, which leads to a host of other problems.
Tips for Borrowers
Car title loans can be problematic, especially if the interest rate is high. Before taking out a car title loan, consider less expensive options. Explore other consumer loans, credit cards, cash advances, and even loans from family and friends.
If you must take out a car title loan, make sure that you understand the terms completely. Ask about the Annual Percentage Rate, as well as any fees that accompany the loan. Finally, make sure that you always make your payments on or before the due date. Otherwise, the lender will add additional fees to the balance, and you may lose your car.
Car Title Loan Alternatives
Consider different alternatives before settling for a title loan. There are other options you could look into, such as the following avenues.
Credit Union Loan
Credit Unions offer short-term loans specifically designed to help its members make those purchases they need. These institutions are focused on the customer and they might be more likely to cooperate with you and help with small loans.
If you’re managing your finances responsibly and making payments on time, open a credit line with a low-interest rate and use it for your purchases or financial needs. Some credit cards also allow you to transfer the balance from one account to another. Look into the details, such as late payment fees, penalties, and other limitations, before you commit to applying for a new credit card.
Selling Your Possessions
While saying goodby to some of your possessions may not seem like a good alternative, it’s one of the easiest and quickest ways to get extra cash fast. Look around your house and identify items that you’re no longer using but are in good condition. Place ads on platforms like eBay, Craigslist, or Facebook Marketplace. Electronic devices, furniture, and appliances are some of the most sought-after items in these places.
Getting a car title loan is a quick way to get cash fast. However, consider the disadvantages before moving forward. Otherwise, a wrong turn could mean losing your vehicle.
Another way to save money is by shopping around for auto insurance. Get an affordable auto insurance quote quickly over the phone by calling 1-800-INFINITY, or visiting our website.
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