Title loans are high-interest, short-term loans that require you to use your car as collateral to borrow money.
For individuals with poor credit history who need a loan, title loans are an appealing option. That’s because lenders don’t base the loan on credit. Instead, it is based on the value of your car.
While this is true, there is more to the question of “what is a title loan” than you may think. Keep reading to learn more about title loans, what they offer, and what process you have to go through to be approved.
The Title Loan Explained
Title loans are secured loans that allow you to use your vehicle as collateral. Because your vehicle is used to secure the loan repayment, the title loan lender has the right to repossess the vehicle if you fail to repay the loan on time.
Usually, title loans are short-term, high-interest options that have very few requirements. This means if you have low or no credit, you can still qualify.
How Does a Title Loan Work?
The most common type of title loan is a car title loan. To qualify for this, you have to own your vehicle outright.
When applying for a title loan, the process is simple. You sign over your title to the auto loan title company.
At this point, you receive up to 25% of the vehicle’s total value. The title is retained by the lender in case you default on the loan.
The amount you can receive depends on your vehicle’s value. The average amount dispersed is $1,000, and the loans usually last 15 to 30 days.
You can repay the loan with one payment or repay the loan on a multi-year installment plan. If you fail to repay the loan, though, the lender can take possession of your vehicle.
Car Title Loan Terms
It is a good idea to understand all the aspects of a car title loan before signing anything.
Some lenders charge approximately 25% of the total loan amount each month to finance it.
If you receive a 30-day title loan for $1,500 and the fee is 25%, you will be required to pay $1,875 and any additional fees to pay off the loan completely.
The lender is required to disclose the APR and the total cost of the loan before you sign. This is beneficial because you can compare options to find the one that best suits your needs and situation with these numbers.
Now You Know What Is a Title Loan and How It Works
If you have ever wondered, what is a title loan, the information above should provide you with the answer you need. If you decide to take out a car title loan, be sure to find a reputable lender and get the best terms possible.
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