3 Key Factors To Remember When Receiving A Title Loan
Posted on: 27 February 2019
From a medical emergency to an unexplained issue that requires replacing your HVAC or water heater, there are many reasons why you may need extra money quickly. You may consider borrowing from friends or family, but this can pose challenges with your relationships. Therefore, taking a loan out against your vehicle may be a better option. With this guide, you will learn a few key points regarding auto title loans, which will help you determine if the option is right for you and your needs.
Your Vehicle Will Be Collateral
You probably already know that you are using your vehicle's title as collateral for the loan, but you may not realize this means you are using the vehicle as actual collateral, too.
If you default on your loan for some reason, you will need to give up the title, which means you will no longer own the vehicle.
Of course, a title loan does offer many benefits as long as you pay the loan back as stated in your contract.
Your Vehicle's Value Determines Loan Amount
Most lenders require a high credit score and income before you can be approved for a loan. Fortunately, a title loan does not have these strict credit and income requirements. In most cases, the amount that you can borrow against your vehicle's title will depend on the vehicle's value or equity.
If you own the vehicle and have the title in hand, you will be able to borrow more money than if you still owe money on the vehicle. If you do owe money on the vehicle, the loan company will calculate how much money the vehicle is worth and compare it to the amount that is owed on your vehicle's loan.
If you owe more than the vehicle is worth, you may not qualify for the loan. However, if your vehicle is worth more than what you owe, the loan company will approve a loan based on the amount of equity you have.
Yes, Interest Must Be Paid
Many people are interested in title loans because they feel they are quick, easy, and affordable. Because they are quick and easy for most people, the loan company does charge an interest fee that is usually higher than the interest you would pay to a traditional lender or bank.
The interest will be calculated into your monthly payments, so you do not have to worry about making separate payments during the course of the loan. This is a small price to pay for the efficiency and convenience of a title loan.
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