Car title loans have recently become a popular option for people who need a quick source of cash. Title loans are particularly useful for individuals with a negative credit history who need access to a loan.
What is a car title loan?
A car title loan is a type of short-term loan. It is quite similar to a payday loan, however, it usually has a substantially lower interest rate because your car is used as security against the loan.
While a car title loan has a lower interest rate than a payday loan (which sometimes will have an APR or annual percentage rate of 1000 percent or more), the interest rate you will pay is significantly higher than most traditional loans from banks and other financial institutions.
If you are thinking about getting a car title loan, there are many things you should take into account. You’ll need to consider certain things very carefully when shopping around for the most suitable lender. Let’s take a look at these in more detail below.
What is the online application process like?
Different lenders will sometimes have very different application procedures for title loans. While some lenders like Optimum Title Loans allow you to complete the application online, others may require you to visit their physical premises.
For example, some lenders may want to inspect your car before approving your application. If the application is completely online, the process will generally be much quicker and more convenient.
How much does the loan entitle you to borrow?
The amount of the loan you will be entitled to depends on the value of your car. Many lenders calculate the maximum amount you can borrow based on a percentage of the value.
Some lenders may offer approximately 50 percent, however, others might be willing to offer more. Before committing to a lender, make sure to check what is the maximum amount you will be entitled to borrow.
How much will you have to pay in both interest and fees and charges
As mentioned above, car title loans are subject to high-interest rates and fees. Before signing a car title loan agreement, you’ll need to know exactly what amount you will be required to pay back at the end.
Ensure that the lender supplies you with detailed information regarding all interest, fees that might be payable. It is particularly important to look out for penalty fees that might not be apparent. Certain lenders may charge fees for paying your debt early. It is best to avoid these lenders because if you are in a position to repay the loan early, you should be able to do so as it will reduce the total amount of interest payable.
The amount of interest may vary depending on the lender, so again it is important to shop around for the best rate based on your needs.
Ensure you can repay the amount on time
Once you’ve determined the total amount you’ll have to repay, you need to consider whether you’ll be in a position to repay that amount on time. Failing to repay a car title loan on time can result in very negative consequences for the borrower. The worst case is that you lose possession of your car as described here on NerdWallet.
If you’re unable to pay on time, many lenders offer the opportunity to take out a second loan or let the loan “rollover” for an extended period. Unfortunately, this means that you would end up paying even more interest and potentially additional fees (for example, late payment fees).
Check the reputation of the lender
Finally, you should check the reputation of the lender. Some lenders may be more reasonable, while some might be unscrupulous and aggressive. It’s important to consider the opinions of individuals who have previously dealt with a lender. This way you can get an insight into what they are like to deal with before agreeing with them. It’s particularly useful to look at online reviews to see if the lender is the right one for you.