What Are Car Title Loans?

You might have come across such ads from online lending companies. If you require immediate cash but have challenges qualifying for the loan from a traditional financial institution, a car title loan can be the answer for you. 

But before applying for the loan, the Federal Trade Commission advises that you first consider the costs involved. There are many other options that you can also consider. Since your vehicle’s title is used as collateral for a car title loan, you will be putting your car at risk of repossession. This means losing one of your most valuable assets, and your main means of transport. 

Car title loans are also referred to as pink-slip loans, title pawn or title pledge. The personal bad credit loans, which are usually offered in smaller amounts, are short term in nature. Most lenders offer loans at high interest and you will need to hand over the vehicle’s title as a guarantee for payment.

What you need to know is that title loans are an expensive financing option. Even if you do not have a clear title, you may still qualify for the loan if you have a percentage of equity in the vehicle. Typically, the home loans have a term of between 15 and 30 days.

The interest rate can be quite higher compared to other short term loan options. A qualified borrower can get a loan amount of 25-50% of the car value. The average loan amount ranges from $100 to $5,500. Some lenders can also offer higher amounts of up to $10,000.

Car Title Loans

Applying for a car title loan

You can apply for a car title loan either online or in-store. Whichever option you go for, you are required to fill out an application form. With the online application, you will be provided with a full list of title loan lenders near you. Among the requirements is to present the car, a government-issued ID card, a clear title and proof of insurance. Some lenders may also require a copy of your car keys. 

Before applying for a title loan, here are some important things to consider;

Review the loan terms

Even before signing the dotted lines, ensure that the lender provides the loan terms in writing. Car title loans are just like any other financing option. This means that the lender has to disclose the total cost of the loan. This includes the finance charge and the APR of the loan. Several factors determine the APR for a car title loan.

Among these factors include the principal amount borrowed, the interest rate, and the loan term. The loans for bad credit also attract additional fee charges like document fees, processing fees, late payment fees, title charges, loan origination fees, and lien fees. 

Watch out for add-ons which can increase the coast of the loan

Besides the loan, you may also need to purchase add-ons, including a vehicle’s roadside service plan. The plan is purchased depending on the value of your loan. If you need to buy add-ons, they will be included in the finance charge. This will further increase the cost of credit. Besides that, add-ons can also be costly and can add a substantial amount of money to your loan amount. 

After you get approved for a title loan, you will receive the funds in exchange for your vehicle’s title. The title won’t be given back until the loan is paid in full. 

Title loans can be expensive

To finance the loan, the lenders charge about 25% of the loan amount per month. This translates to an APR of not less than 300%. The cost can even be higher depending on the fee charges. 

If, for instance, you take out a loan amount of $500 with a term of 30 days, the lender will need you to pay $125 on top of the $500 loan amount. This brings the total cost of the loan to $625-including the additional fee charges.

Debt consolidation could be a solution
Title loans

Payment options

Title loans can be repaid in three different ways;

  •       In-person payments
  •       Through an automated repayment system
  •       Online payments

With an automated repayment plan, you have to authorize the lender to take the loan payments directly from your debit card or bank account. You have to agree in advance for this transaction to take place. 

The ‘rollover’

If you fail to pay back the loan once it matures (these loans usually have a term of about 30 days), your lender can decide to roll over the title loan into a debt. What you need to know is that rollovers come with additional rate and fee charges. If the loan amount was $500 with a 30 days repayment plan, you have to pay back the $625 including the fee charges.

If you are not in a position to pay this amount, the lender can allow you to only pay $125. The remaining debt is then rolled over into a new loan. This means paying extra interest and fees. In no time, you may get into a debt cycle and if you don’t pay the loan, the lender has the right to repossess your car.

Repossession

Defaulting on the loan also comes with its share of inconveniences. It means that you will lose your reliable means of transport to work or any other place that you might want to visit. Some lenders install starter interruption devices which prevent the vehicle from starting, making it easier for them to repossess. They might also install a GPS device that can track your vehicle’s location making it accessible to the lender.

When the starter interruption device is installed, you won’t be able to start the ignition. The devices can also be used with a system that reminds borrowers to pay the loan when the due date arrives. 

In some states, lenders are required to pay the difference between the loan amount and the selling price once they repossess the car. But in other states, lenders are allowed to keep the whole amount from the sale. 

The alternatives to car title loans

Before making the decision to apply or a car title loan, here are some alternatives that you can consider

Apply for a bank loan

Consider a manageable loan amount from your local bank or credit union. Most banks offer short term loans at lower interest rates. These are also some community-based organizations that provide small loans. You can also get cash advance on a credit card, but this may come with a higher interest rate compared to other loan options.

Before you decide on any alternative form of financing, ensure that you go through the terms of the loan. In fact, it is better to shop around and compare your options before you sign the loan agreement. 

Shop for credit

Regardless of whether you apply for an online bad credit home loans or any other form of credit, financial experts advise that you compare the different options available. Ensure that you compare the APR for different types of loans. This includes interest rates, loan fees, and other fee charges. Your main aim should be to get a loan with the lowest APR.

 People in the military usually have special protection against inflated loan rates. Some states also limit the interest rates that lenders should charge on title loans and other forms of credit. But even when there are these limitations, some lenders can still charge extremely high interest on the loans. This is especially when the loan is rolled over and you are forced to pay extra interest and fee charges.

 The best part about shopping around is that you may find loans that offer relatively better interest rates compared to title loans. 

Contact your lender if you miss a payment

If you want to apply for a title loan because you feel that you might fail to pay bills on time, you can contact your creditors and request extra time. Most creditors will give extra time if you assure than that you are acting in good faith. With time extended, you also should find out the charges for the service, which can be an additional finance charge, late charge or a higher rate of interest. 

Sign up for a credit counseling program

Another alternative is to contact a consumer credit counseling service that can help you with a debt repayment plan and prevent collection calls from creditors. The program provides personal loans for bad credit guidance for low or no cost at all. 

Have a budget

Come up with a realistic budget which includes your monthly salary and expenditure. With a budget, you can avoid unexpected budgets that can really eat into your income. It will also help you save extra cash for future emergencies. In this way, you can save the interest and fees that come with a $500, 3 months car title loan. 

Enroll in overdraft protection

Confirm if you have overdraft protection on your bank account (or if your bank offers). If you regularly use all the funds in your checking account and make a mistake in your account records, overdraft protection will save you from other credit issues. Note that the service may have limits and fees. Ensure that you confirm the terms of this protection, what it covers and how much it costs.

Military consumers’ protection

According to the federal law and a Department of Defense Rule, certain financing options, including car title loans offered to military personnel or their dependents must have special protections. Among these protections is that the APR on car title loans offered to a military member with a term not exceeding 181 days should not be more than 36%.

Most of the additional charges are also included in the interest. Additionally, the lender should not have access to a bank account in order to remit the loan payments or provide unreasonable legal notices.

 All the loan agreements which are against these protections are considered void. Lenders who provide car title loans usually ask borrowers to sign a statement concerning their military affiliation. 

But even with the special protections being implemented, car title loans can still be costly. So if you are in the military, you might consider other options before taking a car title loan. These options may include financial assistance from military aid societies like the Navy and Marine Corps Relief Society, Army Emergency Relief, Coast Guard Mutual Aid or the Airforce Aid Society, 

Another option is to borrow from friends and family or get a salary advance from your employer. If applying for the loan is important to you, first consider a bank, credit union or small loan company. These institutions offer consumer loans at a lower interest compared to title loans.

 You can also decide to take a cash advance on your credit card. But this option can be costly. When applying for any form of credit, always take time to go through the terms. You can get legal advice (for free) about a loan application from the service legal assistance office.

Credit counseling is also a useful option that you can think about. If you are a military consumer, contact the Department of Defense through a toll-free 24/7 number 1-800-34- 9647 or visit their website at www.militaryonesource.mil for more information about car title loans, financial planning or any other guidance that you might need.