If you are facing a financial emergency and do not have the credit score to qualify for a traditional personal loan, you may be wondering what your options are.
As you may already know, one option for people no matter their credit score is a car title loan, as long as you own your car and have a lien-free title. But what are car title loans, and are they a good idea? Keep reading to find out.
Basically, a car title loan is just like any secured loan, which means that the value of your loan is tied to the value of something you are using as collateral. In this case, it is the value of your car.
To get a car title loan, you have to apply either online or in person at a store, offer proof of your car, your title, your income, and several other documents in order to qualify. It is very quick and very easy. In fact, many applicants can get their loan approved and have their cash in hand within an hour of applying. Once you take out your loan, you will have a set amount of time – known as a payment term – to pay back your loan and all the other costs that come with it such as your interest rate and any addition fees.
Car title loans can either be a real financial blessing, or a real financial burden.
It all depends on you.
Some questions if you are wondering whether or not a car title loan is a good idea.
- What will I use my loan for?If you have come across an unexpected financial emergency, such as a medical emergency, and you have no other way to make necessary payments, a car title loan could be a good way to help ease the burden. Similarly, if you run a small business and have an opportunity to make one large payment on something that will reap financial benefits down the line, a car title loan could help you make that purchase. If, on the other hand, you are considering a car title loan just to make some indulgent purchases that you want, but do not need, you should probably look elsewhere for the money.
- Will you be able to afford the interest rates? This is a question you should ask when you are considering taking out any kind of loan. Interest rates attached to loans can get really expensive, especially if you have trouble paying on time.
- Take a look at your finances, and take a look at the interest rates offered to you to get a better idea of whether or not you will actually be able to pay off your loan.
- Can you survive without your car? Because car title loans are secured loans borrowed against the value of your car, that means that if you default on your loan, you run the risk of getting your car repossessed. In fact, approximately 20 percent of people who take out car title loans end up getting their cars repossessed. So, before you take out a loan, you have to weigh the ultimate risk. If you know that you simply could not survive without your car, you probably want to hold off on taking out a car title loan.
Now that you have answered these questions, chances are good you have a much better idea about whether or not online car title loans are for you.
If you have decided that you want to take out a car title loan, here are some specific things to look out for when you are doing your initial search.
Interest Rates
As previously mentioned, interest rates attached to your title loan have a huge impact on the overall cost of your loan. Interest rates for title loans can be as high as 25 percent so looking for anything lower than that should be a priority.
The reason why is because interest rates basically equal the amount of money you will have to pay on your loan to take it out. So, if you get a 25 percent loan, that means that a title loan worth $2,000 will require an interest payment equal t0 $500 to pay your loan back in full!
It can be quite the financial burden, so the lower the better.
Flexible Terms
Another aspect of your title loan to keep an eye on is whether or not the lender you are thinking of borrowing from is willing to offer a flexible payment term. As a rule, car title loans are typically short-term loans with terms as short as a couple weeks to a month. That can be great if you are going to have the money you need in a short amount of time, but if you don’t think you will, you are going to need a title loan that comes with either a longer payment term, or multiple terms.
A title loan with multiple terms means that you will be responsible for multiple payments, so a low interest rate is even more important, because you will be paying it several times.
Positive Customer Testimonials
This is the final aspect of a potential title loan to look out for. Title loans can be tricky to navigate and it is important to have a responsible and respectable lender that you are working with.
Check out the company that you are interested in working with by searching the company’s name. If they have great customer testimonials either on their site or on a third-party business review site, you should feel confident in your ability to borrow.