Is Getting A Car Title Loan A Good Idea? (2021)
Short-term loans for small sums of money are available through car title loans. When you apply for an auto title loan, you must give the lender the title to your vehicle. High interest rates and costs are common with auto title loans, making them difficult to repay.
This article will explain how auto title loans work and weigh the advantages and disadvantages of taking one out. Our research team searched the industry for the best auto loan firms to assist consumers make informed finance selections.
What are car title loans and how do they work?
Auto title loans, unlike payday loans, which have a similar goal, function by using your vehicle as collateral. These secured loans are typically for small sums of money and must be returned within a short period of time.
According to Pew Charitable Trusts, the average loan amount is $1,000. Because these are short-term loans with periods ranging from 15 to 30 days, borrowers must normally pay the entire debt at once.
You may consider GreenDayOnline car title loans as a quick option to borrow cash even if you have bad credit.
The procedure for obtaining an auto title loan is pretty simple:
To begin, you must fill out an application. You then present the lender the automobile, title, and a copy of your photo ID. It’s possible that you’ll be requested for a duplicate car key. The car title lender swaps the money and keeps the vehicle title if the loan is granted. You pay the lender a monthly fee in addition to the amount borrowed when you repay the loan.
The monthly fees for a vehicle title loan are usually quite expensive. According to the Federal Trade Commission, the average cost is 25%, which equates to a 300 percent annual percentage rate (APR). It can be expensive.
Let’s say you take out a $500 auto title loan with a 25% financing rate. 25% of $500 is equal to $ 125, which is added to the total amount owed. As a result, you will owe $ 625 at the time of repayment.
Make an application for a car title loan. Auto title loans are available both online and in person. The auto title loan application process does not include a credit check. This is because if you don’t pay your loan, your vehicle will be repossessed by the lender.
Most lenders will require a clear title in order to qualify you for a car title loan. This indicates that you have made a payment on the automobile. Some lenders, on the other hand, may only want you to show that you own the vehicle.
Why are auto title loans so dangerous?
You risk losing your automobile and becoming trapped in a debt cycle if you take out an auto title loan. The lender may allow you to undertake a “renewal” if you are unable to repay the loan. A rollover occurs when a lender enables you to keep the loan funds for another 30 days while also requiring you to pay additional monthly costs.
The occurrence of reversals is fairly prevalent. The Consumer Financial Protection Bureau (CFPB) conducted a survey of individuals who had taken out auto title loans in the previous six months in June 2019. He discovered that 83 percent of those polled owed money on their loans.
According to the Consumer Financial Protection Bureau, around 20% of borrowers face repossession if their loans are not paid in full. According to Forbes, auto title lenders make the majority of their money by allowing clients to refinance current loans. This cycle of modest loans becoming long-term debt also assures the survival of the business.
What are the benefits and drawbacks of a car title loan?
If you’re thinking about getting an auto title loan to cover unexpected needs, weigh the benefits and drawbacks:
Advantages of a car title loan:
- Car title loan disadvantages
- For borrowers with bad credit, no credit check implies approval.
- Payments made on a monthly basis might quickly accumulate into long-term debt.
- You have instant cash available to you.
- It’s possible that your vehicle will be repossessed.
- Your credit score is unaffected by late payments.
- When compared to alternative possibilities, interest rates are expensive.
Because most lenders do not conduct credit checks, auto title loans can be appealing to consumers with bad credit. Plus, if you’re late on a payment, it won’t damage your credit score. However, the convenience of acquiring cash quickly with an auto title loan rarely outweighs the high interest rates and risk of losing a valuable item.
Alternatives to title loans for cars
Because the data on auto title loans isn’t great, it’s usually a better financial option to take another method. Here are some other ways to display your vehicle’s title:
Payday advance: If your employer is in good standing, you may be able to get a portion of your salary sooner.
Friends and family: If you want to avoid going to a bank, talk to your friends and family to see if you can work out a loan with a payment plan with them.
Visa or MasterCard: Credit cards have defined limits, and if you do not pay your debt by the end of the payment cycle, you will be charged interest. Credit cards, on the other hand, have lower interest rates than title loans.
Personal loans: These installment loans are available through banks, credit unions, and online lenders and can be utilized for nearly any financial necessity. They usually have one to five-year repayment durations and have lower interest rates than auto title loans.
Best auto loan recommendations
It’s critical to examine choices when financing a car or using one as collateral to ensure you’re getting the best deal. Always study the terms of any loan and look for any potential penalties. You can also take advantage of numerous financial institutions’ online prequalification services.
Frequently asked questions about car title loans
What kind of car title loan am I eligible for?
The average auto title loan, according to the Consumer Financial Protection Bureau, is roughly $1,000. The typical loan limit is between between 25% and 50% of the car’s value.
Is getting a car title loan simple?
Obtaining a car title loan is rather simple. The borrower completes an application and allows the lender to examine the car and its title. The borrower returns the title in exchange for a loan if the ownership of the car is clear and the lender approves the application.
What is the procedure for obtaining a car title loan?
Small, short-term loans with high interest rates are known as auto title loans. A lender holds the title to your vehicle as security for a car title loan. The lender has the power to repossess your vehicle if you do not repay the loan.
Is security lending harmful to your credit?
A credit check is not required for the majority of auto title loans. This means that a lender is unlikely to disclose the payments to the credit bureaus because the debt can be settled by repossessing the vehicle.