Most people think they know the main components of online title loans, but they don’t always know what to expect when it comes to rates and fees. Did you know that title loans have higher rates and monthly charges than what you see with a personal loan? Or that a title loan will often take longer to pay off than a cash advance? As of the most recent data, we see over 1 million consumers a year taking out a car title loan. This number seems to be on the decline as some states like California and Ohio now limit the loan amounts. But even if the numbers continue to drop, we’re still talking about a significant amount of borrowers and transactions. Now that we know how popular title loans are, let’s answer the main question. What type of fees and rates can I expect with this type of loan?
An online title loan is a variation of a secured loan. With a secured loan you’re guaranteeing the lender to pay them back. In this case you will pay them back the full amount with collateral if you default on the payment obligations as specified in the loan agreement. As we touched on above, there are different limits in each state for the amount of money you can borrow with car title loans. States also have limits on the length of time you can set a payment term for. Some states don’t allow any form of short term lending and using your vehicle as collateral falls into those restrictions! That’s why it’s important to check with your state regulations before you speak with a direct lender. Research companies beforehand with our directory of online title loan companies and save time. In terms of how these title loans work, there are currently limits across the country for borrowing amounts and terms. But you can often expect a lending range of between a few hundred dollars and upwards of $10,000. Most payback terms will last from a few months to 2-3 years if you want it stretched out over a longer period of time.
How much can I borrow when I take out a vehicle title loan?
You may be asking yourself, why is the range of lending amounts so wide, and how does everything else work? Compare short term title loans, with amounts that range in the thousands, with a payday loan that will cap out at a few hundred. Or even a personal loan which lets you borrow a larger amount of cash but will be within a range of a few thousand dollars. The reason for this large discrepancy is that the amount you borrow is based on available equity in your vehicle. Unlike other short term loans and cash advances, your credit is less important for a car title loan. You can have bad credit or a terrible payment history and still qualify for well over $5,000 if you bring enough equity to the table. Here at Car Title Loan Lenders USA we feature many companies who offer loans for those with bad credit or banking problems. You simply need to know what to look for. The amount of equity available will depend on your vehicle’s present-day value. You also need to make sure there are no active liens or holds on the pink slip. Most title loan companies will be able to provide a quick estimate on the amount available to borrow in a matter of hours. They will review your application for credit and appraise the resale value of the vehicle.
What type of Annual Percentage Rate Should I Expect With An Online Title Loan?
No lender will let you borrow the full appraised vehicle value. Reason being, if a customer defaults they may need to sell the car at an auction to recoup the money lent out. If a defaulted loan progresses to this point it’s hard to get the full appraised value back from a simple vehicle auction. In most cases we expect a financial institution to put out 50-60% of the vehicle’s appraised value. This amount can depend on other factors such as the amount requested by the borrower. But oftentimes it will fall within that range.
Bottom Line – I know I can use the collateral in my vehicle, should I still get a loan?
We now have a better understanding of how a title pawn works and what to expect with the application process. At this point let’s discuss the negative aspects of a secured loan and whether you need one in the first place. Everyone knows a bad credit loan will come with a high interest rate. The amount paid back in interest will be extensive. Also, consider that car title loans will lead to an increase in your debt situation. Say you take out a secured loan for $5,000. This amount will show up on a credit report as an existing debt obligation and it needs to be paid back to avoid negative credit problems. When someone uses a vehicle as collateral for a secured loan they’re handing over the pink slip as security. They’re telling the lender you can take my car if I happen to default on the monthly payment obligations.
It goes without saying you don’t want a vehicle repossessed if you miss a payment or two. That’s why it’s important to look at other options available for fast emergency cash. Car title loans are great for someone with bad credit who’s looking to borrow a large sum of cash. But many people don’t fall into this situation. Look into other types of personal loans that promise lower interest rates. Also consider an unsecured loan if you have better credit and don’t need to put up collateral to secure the loan. Speak to your banker or credit union representative to see if there are any options for emergency cash. Think about reaching out to your credit card company about a cash advance. Online title loans are expensive, but they also don’t need much in the way of a credit check. The amount of money you can borrow is high but there’s significant risk if you miss a payment and lose your car. Speak with your financial advisor before you take out a car title loan and look into other ways to borrow money.