How Does Car Title Financing Work For Alternatives To Personal Loans

Considering taking out a cash advance or personal loan, lets review some alternative options for borrowers who may need larger loan amounts:

Car title loans are one option for consumers seeking a quick loan of cash without a credit check and with minimal income requirements. Very much like borrowing money at a pawn broker, the borrower is required to surrender collateral to secure repayment of the loan. In the case of a car title loan, that collateral consists of the title of ownership to a car or other motor vehicle and, usually, a spare set of keys to the vehicle, as well. For the period of the loan, you still have full use of the vehicle as long as you keep making the payments.

After the loan is paid off, the vehicle’s title is returned to you. If you fail to pay back the loan, two outcomes are likely: The lender may immediately take possession of your vehicle and sell it to recover the loan amount or the lender may offer the option to roll over the amount into a new loan, including substantial interest and penalty charges.

Car title loans can usually be taken out quickly in a straightforward procedure and can be arranged at both brick-and-mortar locations and from online companies. For consumers who qualify, the money is typically available within hours.

In most cases, the borrower is required to have a 100 percent clear title on the car in order to use it to secure a car title loan. You can’t still be making car payments to a bank or other financial institution, for example. Some other options that come up when shopping for a car title loan also deserve consideration.

First, shop for lower interest rate options. A 15 percent interest may seem attractive for a short-term loan until you read the fine print and realize the basis of the 15 percent interest calculation is monthly, not annually like other standard loans. This means the actual annual interest is over 150 percent. Companies that provide short-term, secured loans like car title loans are not subject to the same usury laws as credit cards and other conventional sources of consumer credit. This allows them to impose high interest rates. However, since car title loan companies are able to essentially set their own interest rates in many states, those interest rates may vary from company to company. Shopping around online and at physical locations for lower-interest options on car title loans is a must.

Also look for options such as companies that charge a reasonable late fee versus those that immediately take your car away for a single late payment. The policy varies by company. Also find out if one late payment can be used as a basis to raise your interest rate on the remainder of the loan for the duration.

Some companies impose high minimum value requirements for a vehicle to be used as collateral. For example, in order to qualify for a $1,000 car title loan, you may be required to own a vehicle with a “blue book” value of $3,500. Many consumers are unaware of the used value of their vehicle—in may cases, it’s less than they think—and may be surprised to discover it’s not sufficient to secure the loan in the amount desired. Seek out options for a car title loan where the lender will lend at least 50 percent of the value of the vehicle.