When strapped for cash, taking out a loan can be a logical choice when an emergency comes up. However, title loans are not as commonly understood as other debt options such as general personal loans or even credit cards.
Learning everything there is to know about a title loan can help a person decide if it’s the right choice for their emergency expense.
What is a Title Loan?
With a myriad of different types of debt in existence, you’d be forgiven for never having heard of a title loan before. A title loan is a secured loan that allows a person to quickly borrow a sum of cash, typically 25-50% of the value of your vehicle, with a quick repayment period of around 30 days on average.
Secured vs. Unsecured Loan
When considering different forms of debt, you’ve likely heard the terms secured and unsecured. An unsecured loan means there is no form of collateral on the loan, whereas a secured loan uses collateral to reduce the risk the lender faces. Collateral is simply something that is pledged as security for repayment of a loan in the case of a default.
With a title loan, the collateral offered by the borrower is the title to their vehicle. When a borrower takes out money from a lender, they give the lender the title of their vehicle. Once the loan is repaid in full, the title is returned to the borrower.
You are still allowed to drive your vehicle, in most cases, but they may make an extra copy of your keys in case they need to collect on your vehicle.
How Does a Title Loan Work?
Getting a title loan requires a few steps, but first and foremost it’s important that you own the title of your vehicle or at least have equity in it. From there, here is how the title loan process works:
- A person determines the amount of money they need to borrow from a lender.
- A person contacts title loan lenders in their area and submits for prequalification to see what interest rates are offered.
- A person uses a car title loan estimate calculator to see how much the loan will cost them.
- A person signs a contract with the lender of their choice and hands over the title to their car in exchange for funds.
- A person repays the loan, including all interest or fees, if applicable, within the set repayment period.
5 Benefits of a Title Loan in an Emergency
Title loans may not be the right choice for everybody, but they can be extremely beneficial to some individuals in an emergency. Here are five key benefits that title loans offer to borrowers
1. Instant access to cash
Once approved, most title loan lenders offer quick access to cash that allows a borrower to meet the obligations of their emergency expense quickly and easily. In fact, access to the requested cash is instant in the case of most lenders, which is what makes title loans so appealing.
2. Quick processing times
With some loan applications, you may be left waiting for days or weeks before receiving approval or denial. Luckily, processing times for title loan applications are very quick, with many lenders even offering same-day decisions.
3. You can keep driving your vehicle
Most lenders will allow you to keep driving your vehicle while the loan repayment is outstanding, despite the fact that they now hold the title. While this isn’t true for all lenders, and there may be caveats such as the lender copying the key for themselves, it’s a major benefit offered by many lenders.
4. No guarantor or abnormally high credit score is required
The requirements to get a title loan are minimal and most lenders won’t even check your credit score. So long as you have ownership over the title to your vehicle, you will meet the requirements most lenders demand.
5. Potential payment plans available
Despite the quick repayment period, many lenders will offer payment plans that allow you to stretch out the repayment instead of making a lump sum deposit to the lender.
Get quick access to cash when you need it
Title loans may not be the right choice for everyone, but they can provide individuals with necessary funds all while requiring little to no requirements besides ownership of a vehicle.
Keep in mind that title loans are inherently riskier due to their use of a vehicle as collateral, so only take out a title loan if the interest is fair and you are sure you can meet the repayment.