Car title loans are a great way to get quick cash when you need it the most. When determining if car title loans are worthwhile for you, be sure to consider all the pros and cons as well as your unique financial situation. It is important to understand how car title loans work too, below are five facts.
1. What Are Car Title Loans?
Car title loans are a method of borrowing money by using the title of your car as security. In the event that you default on a loan, your car is sold to cover the cost of the money extended that wasn’t repaid. In other words, your car is pledged as collateral to a lender in exchange for a loan.
Cars are commonly used for these types of loans, but other vehicles, such as trailers, RVs and boats, can be used to secure the loan too, so long as you have the title ownership.
2. Interest Rates and Fees
The interest rates for car title loans are typically lower than other unsecured personal loans, such as credit cards, because there is an asset securing the loan. That being said, car title loans are still more expensive than the average loan.
The interest rates for these loans are usually between 25% and 30% for one month. That percentage is not unreasonable, but remember that these loans are usually due within 15 to 30 days. If you cannot come up with the money in that time, the interest adds up fast.
Usually, there are other applicable fees as a part of car title loans. These can vary a lot depending on the lender you choose and sometimes the fees are due upfront before the loan is extended.
Car title loans are similar to payday loans in the sense that they offer quick cash for the short term, are usually expensive and the industry targets desperate people who need fast money. However, they still have their uses.
For example, if you need quick cash for a medical treatment or to pay an unexpected expense, car title loans work well. Keep in mind that the cost of car title loans are more expensive than average loans because you’re essentially paying for a high risk transaction and the convenience of quick cash.
In addition, individuals with poor credit who need financing can easily get approved for this type of loan. If you can repay the loan, it is a good way for people with bad credit to start rebuilding their credit.
4. Risk of Losing Your Car
Before you jump into a car title loan, carefully consider the risk you’re taking. If you can’t pay back the loan within the time you’re given, your car will be repossessed and sold to repay the loan.
Some individuals need their car as a part of daily life which makes the risk of losing the car highly concerning. Others may not need their car on a regular basis which makes this type of loan less risky. Remember that everyone’s situation is unique, be sure to consider your circumstances before applying for a car title loan.
5. Alternative Financing
If a car title loan is too much of a risk for you, there are other ways to get quick cash loans for your immediate needs. Personal loans and credit cards are both similar alternatives to car title loans if you don’t want to risk losing your car.
Friends and family can help in times of financial trouble too, if the option is available to you. Borrowing money from friends or family is usually much safer because you won’t be tied down by stringent payment schedules, strict terms and conditions, and high interest rates.