If you own an automobile – paid in full with no liens or current financing, automobile title loans can be a source of funds at a time when you badly need cash. As long as you are entitled to your auto (see eligibility criteria), this kind of short-term loan can work wonder for you or those on the lower end of credit score scale.
No credit check is run as the only consideration for the loan is the value and condition of the vehicle. In this case, the title of your auto is kept as collateral for the loan.
Often you’re required to provide a spare set of keys when the loan is granted. Of course, you are still the rightful owner of the car.
How Auto Title Loans Work
Automobile title loans are designed for short-term financial relief and carry higher interest rate than other sources of credit. The loan is secured by the title to the vehicle. The maximum amount of the loan is determined by the collateral.
Typical lenders will offer no higher than 30 – 50% of the actual appraised of resale value of the car, meaning that most auto title loans are “oversecured.” The repayment dues are made within 14 days to a month of the loan on being issued where the borrower has to repay the entire amount of the loan plus fees in one lump sum (a “balloon payment”).
Bear in mind that if you are unable to pay off the loan amount, there is a provision of rolling over the loan repayment for another payment period where it carries a large interest payment against the loan from defaulting, or the lender will come and take the car, sell it, and keep the money from the sale.
Since annual percentage rates for auto title loans are marginally very high – depending on the state where the lender is located, interest rates typically range from 36% to as high as 651.79% (APR) source: Wiki, rolling over the loan for a few more days carries the fact that you could end up paying a whole lot more the amount of the loan in interest and fees alone.
For lenders title loans are a very low financial risk, typically the loan amount is far less than the value of the automobile. On the other hand, it can be a very high financial risk for the borrowers, especially those who borrow more money than they can actually afford to pay.
Remember, a single missed payment on this title loan could result in your car being repossessed at anytime. If your car is seized, any additional funds obtained from the selling of the vehicle is also retained by the lender.
Depending on your circumstances, auto title loan is a convenience way to get hold of cash fast. Just the only thing you need is to pay back on time. Otherwise, when you default on the loan, the car would be forfeited and sold to resettle the balance of the loan. If the sold value of the car is less than what it’s owed, you’re still obligated to pay the difference.
For this reason alone, it’s important that you weigh the pros and cons and decide if automobile title loan is really the best available option. If you decide to complete the title loan, be cautious. Read the contract in detail before signing on the dotted line and completing the process.
