Title loans are a type of loan often used when people require quick access to cash. The borrower secures the loan using a vehicle as collateral, handing over the title to the lender. A title loan is often a convenient solution. However, there are several details to consider before applying for one.
1. Lenders May Offer Loans to Those with Bad Credit
A secured loan gives lenders security in case the borrower defaults on the loan. Due to this security, the borrower’s credit standing has less of an impact on the risk assessment when approving the loan.
The primary factors for assessing the risk of the loan include the value of the car and the borrower’s ability to repay the loan. Lenders may require the borrower to provide proof of income, but bad credit is unlikely to become an obstacle to getting approved.
2. Car Title Loans Provide Fast Access to Cash
The main reason to consider applying for a title loan is to receive fast cash. The entire process takes less time compared to other personal loans.
Lenders have fewer details to analyze when approving the loan. In most cases, the lender can approve a loan within minutes. Cash is then delivered to the borrower on the same day.
3. The Borrower Needs Equity in the Vehicle
A title loan is a type of secured loan where the borrower uses a vehicle as collateral. Any existing liens on the vehicle may disqualify the borrower from obtaining a title loan.
Lenders typically require borrowers to have sole ownership of the vehicle. However, some lenders may accept a vehicle if the borrower’s equity in the vehicle exceeds the value of the loan.
Many banks and lenders accept almost any type of vehicle. Along with cars, borrowers may use RVs, trucks, or motorcycles as collateral.
4. The Car Value Determines the Maximum Loan Value
Lenders often place limits on the maximum amount a customer can borrow with a title loan. The loan value is often limited to a percentage of the vehicle’s value.
The average title loan amount is between $100 and $5,500 and equals 25% to 50% of the value of the vehicle. No matter the value of the vehicle, many lenders have a $10,000 limit on these loans.
5. Interest Rates and Term Lengths Vary
Shop around for the best rates before applying for a title loan. These loans often come with higher interest rates compared to standard personal loans. However, a title loan remains more affordable compared to cash advance loans.
Before applying for a title loan, borrowers should review the details of the loan agreement. Examine the fees, interest rates, penalties, and term length. If approved, borrowers may also set up repayment options that accommodate their pay schedules.
Borrowers may obtain a title loan with bad credit and receive cash the same day they apply. Title loans also provide a way to eliminate stress by meeting other financial obligations quickly and efficiently. If bad credit prevents a borrower from obtaining a traditional loan, a title loan is a viable option.