What is a Title Loan and How Does it Work?
Have you turned to conventional lenders to meet your short-term financial needs? However, you have declined your loan application due to your bad credit rating? When established sources of funding fail, a title loan can help you in unforeseen finance-related situations. Over the years, it has become one of the most secured loans in the world. A title loan enables a borrower to obtain funds using their auto title as collateral. With such sources of credit, the lender takes into account the value and condition of the vehicle. Generally, title loan companies work with financial institutions that allow borrowers to take out loans. The best thing about a title loan is that it is time-saving compared to other traditional financing options. In most cases, the borrower will receive an approved amount in their bank account within 24 hours.
It is a must to understand the pros and cons of a title loan from the borrower’s perspective before you begin. To make it easier for you, we have put together the most important advantages and disadvantages of this form of financing:
Benefits of Title Loans
- Auto title loans don’t follow cumbersome procedures. All you have to do is fill out an application to apply for the loan. Once this is done, it will either be accepted immediately or accepted later with additional facts and details.
- Borrowers with poor credit ratings are also eligible to apply for title loans. Generally, lenders are ready to offer credit when your financial statements show you have a steady source of income.
- Since the lender is mortgaging the title of the car, the borrower has no usage limit. However, if the latter is in default of payment, the rental company will take ownership of the vehicle.
- It is an ideal and quick way to meet your financial obligations in the short term.
Disadvantages of title loans
- Typically, title loans have a high interest rate. But some state laws such as Texas title loan Laws discourage lenders from charging an unreasonably high interest rate on the loan amount.
- If loans are not paid on time, additional fees and reducing fees may exceed the loan balance. Hence, it is recommended to gain the trust of lenders in order to avoid such situations.
How does a title loan work?
The prerequisite for the title loan is a loan application that contains essential information about the borrower and the vehicle. Along with the application, you will need to receive the car, proof of identity, pink slip of paper proving ownership of the car, and other required documents such as a driver’s license and a sales contract. Once the application is complete in all aspects, it will be forwarded to the car loan company. Once approved, the agreed amount will be credited to your bank account. Most lenders get information about your sources of income and monthly expenses from your annual financial statements. If you are self-employed or employed, your chances of getting a loan approval are higher. How much money you can borrow depends on the condition and value of your vehicle. Typically, such loans are repaid within 30 days. However, there is a concept called rollover of the loan that allows you to borrow the money for an additional month with the prior approval of the lender. However, renewing the loan repeatedly may result in the loan amount not being paid out. This could lead to repossession, which means the lender will regain ownership of the vehicle. Now the lender can sell the car to pay off their outstanding debt.
If you are planning on going for this funding option, make sure you find a title loan company registered and certified under the laws of the state. With a large number of title pawnbrokers, it is not easy to get one. However, with a little research, you can get in touch with an auto loan organization that will lend you on-demand.