Occasions arise where you may need some financial boost. One of the options of acquiring such boosts would be by borrowing money. There is a range of choices from where you can borrow. One of these choices is getting a car title loan. A car title loan is a short term loan offered to a borrower and whose security is the car title. This type of loan comes in an appealing seal of fast processing. A car title loan can be processed in under two hours.
In most cases, lenders give borrowers a loan of about 25% the value of their car. One would be lucky to find a borrower giving a loan amount beyond 50% of the value of the car, and the condition of the car here must be really good.
How to get a car title loan
It’s a requirement by most lenders that the borrower avails the car for inspection. The borrower must have an original title of the car, which is left with the lender as the collateral for the loan. The lender asses the car and may ask for a few more details. This would include a national identity card, proof of insurance, and the car’s registration. The lender may also ask you to provide names and contacts of people who be contacted. These people act as loan referees. On some occasions, the lender can ask you to avail of a copy of the car keys, GPRS tracking, and even your recent financial statement for them to assess your ability to pay the loan.
Rates, cost, and fees of a car title loan
A car title loan is one of the types of loans with a steep interest. Interest is the fee charged on loan borrowed. Most financial institutions calculate this fee annually. This is the reason it is known to as Annual Percentage Rate, abbreviated as APR. It is the percentage of the principle that must be paid with the principle. For this type of loan, the interest is normally calculated monthly. The interest may be as high as 30% per month. This means, if you borrow $1,000, you will pay a fee of $300; this would amount to a total of $1,300 in just one month. When calculated annually, this translates an APR of over 300%.
For how long can you pay a car title loan?
Car title loans may be offered in two different types of payment. You may make an agreement with the lender that you pay the whole amount in a lump sum in 30 days. In other cases, one may consider paying the loan in installments. The period for this loan may go up to two years.
How car title loans affect the credit score
The credit score is a measure of once creditworthiness. Most financial institutions will assess your credit score before they approve or disapprove of your loan application. Every loan application lowers the credit score, and every loan repayment increases the credit score. Interestingly, car title loan lenders may not bother to check your credit score. This is one of the reasons why people with poor credit history would prefer to get this type of loan. When you pay the loan, the lender does not report to the credit bureau. This way, your credit score is unaffected. Also, when you fail to pay the loan, the lender does not report to the bureau, they sell the car. Still, your credit score remains unaffected.
What would happen when you fail to pay?
Life is full of surprises and eventualities, and most times, the things that happen are unexpected. These unforeseen events may include loss of employment, theft, or even sicknesses. When such things happen, one is unable to pay the loan and honor the agreement with the lender. In such circumstances, the lender may sell the car and keep the money. Sometimes, the lender may decide to push the amount for one more month. The interest is then calculated on the whole amount due. This commonly referred to as rolling over, and the new interest may be called the rollover fee. If such an event happens again, the lender may still roll the loan over again repossess the car. For the case of a rolled-over debt, the borrower may finally be unable to pay, and the car may finally be repossessed.
Most of the people who go for car title loans are usually in desperate need of money. Lenders take advantage of their situation and offer the loan with that really high APR. This is because it would work for their advantage if the borrower is unable to pay the loan. The lender can sell the car at a higher amount and keep all the ‘profit.’ It has been shown that about 20% of the people who use car title loans end up having their cars repossessed. Car title loans can fix you in debt throughout your life. This is because; some value their cars and may not want them repossessed. They would, therefore, obtain a loan from somewhere else to offset the current loan. This process may repeat itself until the borrower gets into a situation they can’t help anymore. The car may finally still be repossessed.
When to go for a car title loan
Before settling for applying for a car title loan, it is important for one to try other options. These options may include approaching your bank for a loan. This is a really good option since the bank rates are very favorable. Bank rates can have an APR of about 7.5%. Another option would be trying to acquire the loan from family and friends. This is even a better idea. Family and friends are likely to offer a soft loan – a loan with an APR of 0%. You may also consider using your savings if you have some. Another way out would be using your credit cards. Until none of these options is available, you should not even think about a car title loan. It’s too risky.
Factors to consider when selecting your loan source
It is important to think and deliberate on your move to get a loan before you get it. The first question that should always ring is, “Am I able to pay this loan?” Always go for a loan that you are able to pay, a loan you are sure about. It is also important to consider the duration given before the loan is due. It is always better to go for a shorter duration. Lastly, it is of absolute significance to check and consider the APR. Some interest rates are too high. They sometimes could even double the principle.
Make your decision
If, after considering all the options, you realize that getting a car title loan is the only option, it is important to follow some steps. It would first be necessary to have it at the back of your mind that you are about to get into a risky business. The second thing you should do is ensuring that you have all the requirements for you to get the loan – confirm that you have the title, the car registration, and up-to-date insurance, a copy of your car keys, contacts, and names of people who can be your referees.
After confirming that you have all that you may require, it is important to select a lender too. Evaluate the available lenders and consider the lender who gives you a lower APR and a lender who you can personally talk to for adjustments if things got to the worst.
How do you use a car title loan?
In the first place, you only went for the loan because it had a dire need. It will be a catastrophic disaster if the money is used in the purpose it was not intended to be used in. If it feels like the money could be of more use elsewhere, then you did not need the loan in the first place. It is also your obligation to be disciplined not only in using the money but also in paying it. This would reduce the frustration of having your car repossessed.
It is fair to say that car title loans have helped people jump out of sticky situations. It has helped obtain emergency medical care, and it had helped others settle important bills when no other option was available, and it has bailed people out of hopeless situations. And just like the cliché goes, “every coin has a head and a tail,” these types of loans have their own setbacks. A borrower with a repossessed car can get heavily frustrated and sometimes even get them isolated or withdrawn.
The best thing to do would be to completely avoid getting car title loans. If you have to get one, you have to be really disciplined to pay. If you don’t pay, you will be at a very big risk of getting your car repossessed. You may lose your means of transport to school, work, or business.
