The usefulness of assets is most felt when you can pledge it as security for obtaining loans. Many people borrow against their home equity, which is popularly known as a reverse mortgage, provided the property is free from encumbrances. Unlike mortgage payments, borrowers need not make monthly payments against the loan while the property serves as collateral security. Similarly, you can use your car equity to avail car title loan for which you must be the car owner with the title in your name. The title must be free and clear so that you can pledge the vehicle to the lender and avail loan, which is a percentage of the value of the vehicle as determined by the lender.
Car title loans are short term loans that provide quick cash, and you can walk out with the cash in just an hour. You must pledge the title of the vehicle to the lender that becomes the collateral security and get it back once you pay back the loan. Despite the quick availability of cash, you must explore the option of car title loans only when you have no other options available. It makes complete sense to avail car title loan for medical emergencies but not for going on vacations with your family.
Car equity matters
The value of your car determines your loan eligibility, and to avail higher loan, the car must have more equity. The title of the car must be clear, and if it carries any loan that you had taken at the time of purchasing the car, you must clear it first to avail of the new loan. However, there are exceptions, and you could find some lenders willing to pay a loan against the vehicle despite carrying a loan on it. The equity you have in the vehicle or its value determines how much loan you can get that often has a capping according to the state laws. Moreover, some state laws allow lenders to charge interest without any capping for loans of a higher amount above some specified amount. For California residents, lenders can charge uncapped interest for lending more than $2,500.
Full value loan is not possible
Lenders decide the loan amount by assessing the value of the vehicle and considering the amount that they deem safe for lending. Based on the assessment, lenders decide a percentage of it that constitutes the loan amount. This makes it clear that you will never get the full value of the vehicle as a loan, but only a certain percentage that the lender decides, and this amount can differ between lenders. To maximize the loan amount, you must shop around and negotiate with lenders only if time permits because most often, people avail car title loans when it is a dire necessity.
Lenders play safe
Lenders bank on their ability to disburse the loan instantly, which meets the borrower’s need, but at the same time, they stay safe in recovering the outstanding amount should the borrower falter in paying. To make it easy on themselves, lenders pay only a part of the vehicle value as a loan while holding the title of the vehicle. The arrangement ensures safe lending because, in case of things going wrong, lenders can recover more than the outstanding amount by selling the car as they hold the title until the loan repayment is complete.
From where to get car title loans
Normally, storefront finance companies do most of the business of car title loans, but if you are the type who is searching for “title loans near me”, then you can also approach banks and credit unions. Sometimes, the latter offers better deals than finance companies. The advantage of taking such loans from banks and credit unions is that you could get a longer payment term of 4-5 years, which makes it easy to get your vehicle back by making timely payments. Even fees could be lower for loans given by banks and credit unions than what the financial companies charge.
Features of car title loans
Getting a car title loan is easy only if the title is in the name of a person seeking a loan and does not have any encumbrances attached to it. Another reason why people prefer it in extreme emergencies is that loan processing and disbursal are very fast. It could take just one hour to get the loan from the time you turn up at the lender’s office with your car.
- Since it is a secured loan, lenders do not check the borrower’s credit because they are not concerned at all, even if the borrower defaults.
- Lenders may also not look at the borrower’s income for the same reason. The arrangement is like pawning, and the entire risk rests on borrowers who stand to lose the car if they are unable to pay back the loan.
- In the event of failing to pay back the loan, the lender not only takes possession of the car but will also charge fees for the repossession as well as storage.
- Some state laws allow lenders to retain the entire value recovered by selling the vehicle.
Beware of single-payment loans
Lenders have the option of installment payments over a period of 3-6 months or a single payment in 30 days. The latter is often a pressing choice that puts lenders in trouble because the interest rate of 25% per month can be quite taxing to pay back within a short time. Surveys show that only 12% of borrowers could make full payment on time, and the majority had to reborrow and extend the loan tenure to get more time for making payment. Reborrowing is dangerous because it can lead to a vicious debt cycle that sucks creditors into it with no signs of reprieve.
If you are ready to cope with the high-interest rate and gamble with your car, a car title loan might be for you. However, it is better to consider it as the last recourse because it may cost you your car if you are a habitual defaulter for loans.