A Car Title Loan
A car title loan is a type of loan where you use a car registered under your name as collateral. In this type of loan, you must transfer the ownership of your vehicle to the lender so that he/she can give you credit equivalent to the cost of the car. That means that if you fail to pay the loan, the lender is at liberty to own the car. A car title loan requires that you get a loan against your car provided it is not older than five years. Furthermore, the interest rate charged on this loan is typically higher than other secured loans. Therefore, it is not possible to get a deal where the interest rate is lower than that of a personal loan interest rates.
If you go the loan route, you do not need to use the principal-agent for service, and the solution for your financial crisis is not getting a car title loan in the first place. The interest rates that these companies charge are outrageous and are often higher as compared to multiples of credit card interest rates. You are often at a lower credit score range when you need such a car title loan and this compound the amount of interest you pay due to the higher interest rate they charge you. There is another big problem with going down the loan route. However, you are always looking at the possibility of changing your car more often not been tied and being out of negative equity so much sooner.
A Personal Loan
The personal loan companies always charge a high-interest rate to balance the high default rate. Many people fall upon personal loans during emergencies or to bridge a gap in their funds for occasions such as marriage in the family. Going for personal loans, you are running a risk of exposing yourself to serious credit risks since the loan companies usually take advantage of you. If you are going for a personal loan, you are likely to get bad credit. Banks and credit unions will only lend you money when you are in sound financial health, stable job and a good credit score showing you have a history of making sound business decisions. But why would you need a personal loan if you have such ability?
Another type of loans that are better than a car title loan
Apart from your car, there are many lower-cost loans provided you can provide your investments as collateral. They offer loan rates that are much lower than those of personal loans. In financial industry parlance, they are called loans against assets. Here is a primer on them.
a) Loan against fixed deposits (FDs)
If you have a fixed deposit (FD) and the required loan amount is less than your FD investment, opt for a loan against FD. You will get up to 90% of the FD amount as a loan. The interest charged will not be stressful to your finances since it will be just 1-2% above the FD interest rate. So, for an FD paying 9% annually, the loan against FD is likely to be at 10-11%, much lower personal loan interest rates. The other great thing about loan against FD is that the loan gets processed very quickly if you approach the same bank which issued the FD.
b) Loan against gold
If you have gold jewellery lying idle and to which you are not emotionally attached, you can get them to work for you by taking a gold loan against them. The rate of interest for this loan would be much lower than the car loan rate. Private lending institutions such as non-banking finance companies (NBFCs) offer quick disbursal, while banks offer a lower interest rate. So, you may like to approach a bank for better interest rates and repayment flexibility.
c) Loan against financial securities
If you have investments in the form of shares, mutual fund units, bonds, National Savings Certificate (NSC), life insurance and others, you can get a loan against these securities at interest rates lower than interest rates for personal loans. Typically, lending institutions such as banks offer up to 50% of the value of these securities as loans.
Conclusion
If you are wondering whether to go for a car title loan or personal loan to solve your financial crisis, you should first understand the main features of car loans and personal loans. By knowing the differences, you can make a better decision to choose between getting a personal loan or a car loan. Find information about the differences in interest rates, information required in each case, and the coverage of the loan. The proper knowledge will help you compare lenders of car loans and personal loans, making your car buying decision more manageable.
