Short-term, high-interest title loans use your car as collateral. If you have bad credit and need a loan, you may be looking for places that will accept you. Title loan providers don’t examine credit, but there are other restrictions.
Here’s what you should know about title loans
Describe a title loan use your car title as collateral.
A title loan uses the car as collateral. If you don’t repay the loan on time, the lender can repossess your car. Title loans are short-term, high-interest loans with little criteria, thus poor credit is okay. Scores and histories aren’t always considered.
What are title loans?
If you own your automobile outright and have a lien-free title, you can get a title loan. During your application, show your lender your automobile, car title, and license.
If authorized, you’ll give the lender your automobile title. Title loans usually have 30-day terms, like payday loans, but the lender decides. You’ll make one lump-sum payment at loan’s end. You must repay the principal, interest, and fees. Most lenders demand a 25% monthly fee, which corresponds to an APR of at least 300%.
Title loans can cause headaches. Your car is collateral if you don’t return your loan on time. If you get a title loan, pay on time to avoid losing your car.
Title loan limits
The lender will establish your loan limit based on the car’s valuation. Loans range from $100 to $10,000 or more.
Why get a title loan?
According to the Consumer Financial Protection Bureau (CFPB), 20% of car title loan borrowers have their automobile repossessed. Car title loan companies rely on consumers who take out new loans to cover old ones. Over half of auto title loans become long-term debt, and over four-in-five auto loans are reborrowed because borrowers can’t pay it off in full with one payment.
Instead of a title loan, consider other financing options. Credit union payday loans, online personal loans, credit cards, and borrowing from friends and family are better than losing your car.
Title loans pro/con
Review the advantages and cons of title loans before applying. This can help you decide whether to proceed.
Title loans’ pros
Most title loans are credit-check-free. This is wonderful news if you need cash but don’t have good credit for a traditional loan.
No credit check means lenders can assess your application and car in minutes. Once authorized, you can get funds within days.
Title loans drawbacks
Money pit: CFPB: more than half of auto title loans lead to debt. This means debtors take out new loans to repay previous ones, perpetuating a cycle of debt they can’t escape. It keeps you in debt months after you borrow.
Due to interest, finance costs, and other fees, title loan APRs might reach 300%. This adds to your financial commitments.
Title loans often have 15- to 30-day repayment durations. Depending on how much you borrow, traditional loans have six- to three-year repayment durations. A 15- to 30-day repayment period isn’t usually enough time to repay a high-interest loan.
Losing assets: Car title loans can force you to continue racking up debt or give up your car. Pay on time to avoid title loan obligations.
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