Car Title Loans – What Are the Pros and Cons?

by Justin Weinger on March 12, 2015

Car title loans are short-term loans in which you receive the loan proceeds as a result of pledging your vehicle as collateral for the loan. In order to get a car title loan, you must first provide the lender with your vehicle title. The lender will determine the value of your vehicle, then give you a loan is based on that value.

Car title loans have short terms (less than one year), which means that you may need to pay back the loan within as little as 30 days. Your car title will be returned to you as soon as your loan is paid in full.

The Pros of Car Title Loans

Under certain circumstances, car title loans are an alternative worth considering. Here’s why:

Ready cash on short notice. The application process is simple, and once the value of your vehicle is determined, the lender will make the loan quickly, usually on the same day. Some car title loan companies advertise that you can have your cash within 30 minutes of application.

Your credit isn’t a factor. Car title lenders make loans to people of all kinds of credit. Even if you have poor credit, you can usually qualify. You can even get a title loan after bankruptcy. Some lenders don’t even check your credit all.

You don’t need to have a job. Car title lenders are more concerned that you have an income, as opposed to a job. That means that you can get a title loan if you have unemployment, disability, or retirement income.

The loan is based on the value of your vehicle. More than anything else, your loan is based on the value of your vehicle, which the lender can quickly determine through Kelley Blue Book or other online car valuation services.

Car title loans work for people who can’t get credit otherwise. Whatever the merits of car title loans, they are often the only way that people with poor credit can get loans of any type.

The Cons of Car Title Loans

Whatever the benefits to car title loans, borrowers need to consider the negatives before deciding to proceed. Some of those negatives include:

High Interest Rates. Interest rates are typically quoted on a monthly basis, which means that they may look more attractive than they really are. For example, the lender may charge interest of 25% per month! That’s the equivalent of an annual rate of 300%.

You can’t get a loan if you don’t have the title of the vehicle. Another way to put this is that you won’t be able to get a car title loan if there is an existing lien on the vehicle. This is because the current lender on the car has possession of the title, and you won’t have it to pledge as collateral for the new loan.

Short-term loans. Loan terms can be as short as 30 days, or as long as one year. Shorter loans are much more common, and you will need to make sure that you are able to pay it off in full within that timeframe.

Loan amounts are limited by the value of your vehicle. Specific loan amounts and terms vary by state law, but lenders generally provide loans up to 50% of the value of your vehicle. In some states, lenders may lend a higher percentage.

If you don’t pay, you lose your vehicle. In the event that you are unable to pay the loan by the due date, the lender will take ownership of your vehicle. In effect, your inability to repay the loan will represent a payment to you (in the form of loan proceeds) for the purchase of the vehicle.

Before deciding to take a car title loan, first carefully weigh out the pros and cons, and decided if it’s the right choice for you.

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