What is a Car Title Loan?
By Eddie V. —
Published February 19, 2018
When you pledge your car as a collateral to get a short-term loan, it is called a car title loan. In effect, you have to give the title of your vehicle to the loan provider till the whole amount has been repaid. Car title loans can work out to be very costly and are usually only opted for in situations where there is no other choice. If you are in sudden need of funds and have no other way of getting them, you can choose to get a car title loan.What are the requirements for a car title loan?
There are certain requirements that you need to meet when you apply for a car title loan. These include: 1. Ownership:
The first and most important criterion is that you must own your car. In some cases, you might be able to get the loan even if you are still paying off the car loan, but for the most part, you need to have full ownership. 2. Car value:
If you need to borrow a large sum of money, you first need to be sure that the car meets that value. Very simply put, the more expensive the car, the more money you can borrow. 3. Funds to pay back:
A car title loan is usually a short-term loan that needs to be paid back fairly quickly. In most cases, you will need to pay back the loan within thirty days. While the loan can help you out in an emergency situation, you will need to find a more long-term solution quickly to be able to pay back the title loan. 4. High 0 interest rates:
The price you pay for getting quick funds is a high-interest rate. Interest rates on car title loans are not only more expensive than regular loans but also than that of credit cards. Combine that with the fees you pay to get the loan and you end up paying back a lot more than what you borrowed.What are the risks involved?
The main risk of taking a car title loan is that of losing your car if you can’t pay it back. Using your car as collateral and giving the lender the title gives you little power over this outcome. If you don’t come up with the funds to pay the loan back, you have to forfeit ownership of your vehicle.Are there better options?
As mentioned earlier, a car title loan should only be opted for if there is no other choice and you are bordering on desperation. Here are some other alternatives you can try before looking at a car title loan:1. Credit cards:
Even maxing out your credit card and putting yourself in a bit of debt is more affordable and less risky than a title loan. The interest rates on credit card debt are lower than that of title loans. 2. Personal loan:
Check with your bank or a reputed lender if you qualify for a personal loan. Personal loans have lower interest rates and give you more time to pay them back. 3. A second income:
If you know that you will need the funds sometime in the near future, you can try and earn the extra money. Taking up a second job or doing extra shifts at your workplace could help you earn the cash instead of having to borrow it. 4. Saving money:
You don’t have to wait until you are in a desperate situation to worry about money. Putting away a small percentage of your income every month for an emergency fund can help you avoid having to borrow the money when the time comes.
While a car title loan can be very useful in an emergency situation, the process that follows can be quite overwhelming. To avoid risking your vehicle and putting yourself through the stress of having to pay back an expensive loan in a short time, you should plan your finances better.