Learn How our Title Loans Work
Frank Glemstone is MoneyZap's authority on personal loans. He has been a writer and editor at the MoneyZap content team since 2021. Graduated from Texas A&M University with the Master's program in Economics Sciences. Throughout his career, Frank has achieved the Springeropen award nominee for Financial Innovation and won a SABEW award for outstanding knowledge in finance. Frank now lives with his beloved wife and son in Jackson, Mississippi.
What Is a Title Loan?
A title loan is a loan that requires you to use an asset as collateral. In other words, you have to drop a valuable item as collateral for the loan. Most people like going for these loans because it does not require much to get them.
People who use a title for loans usually need money within a short time. People with financial difficulties also opt for title loans because they can easily access a poor credit score. These loans are generally short-term. You can get more long-term loans from a bank.
A car title loan is the most common type of title loans. Here, you use the car title for a loan. If a car is solely yours, you can put the car title up as collateral for the loan. Whenever you pay up the loan, you can get your car back.
Title loans usually cost much compared to other types of loans. Some people see lenders of these loans as predatory lenders. The interest rate is high.
How Does It Work?
Title loans require collateral. The car title loan is the most common. This loan process is quite easy. You can take a look at how these loans work below.
The borrower is required to own a car solely. The car must outrightly belong to the borrower, not shared with another party. The borrower then signs over the title of the car to the lender.
The auto loan title company keeps the car's title as collateral. Usually, the loan company lends up to 25% of the car's value to the borrower. If the borrower defaults, the lender repossesses the car in place of the money.
Car title loans amount to $1000 or more. The loan term is usually short, between 15 to 30 days. The borrower can repay the car title loan at a time. Another option is to make repayments in form of installment loans.
There are times when a borrower cannot repay the car title loan when it is due. When this happens, there is a chance that the lender will possess the car. However, it is not always so.
The title loan company often has a plan that cuts a borrower in default some slacks. The loan company allows the borrower to pay only the interest within the space of a month.
If the borrower cannot pay the loan amount at the end of the month, he can continue paying the interest that accrues each month. This way, he effectively rolls over the loan amount until he can pay it.
This method is somewhat good because it allows the borrower in default to have his rights reserved on his asset. As long as the borrower is making payments, he has not forfeited his car. Note that if this plan does not work, the borrower eventually forfeits the loan's title.
However, the downside is that it makes the borrower pay a huge amount of money for the little money he has borrowed. It is predatory on the borrower. The interest rate keeps adding up for as long it takes for the borrower to repay the loan money. It is one reason why people avoid this kind of loan.
How Do I Get A Title Loan from MoneyZap?
Getting title loans is not difficult. With the right loan process, you can have the money you need. Here are vital steps to getting a title loan within a short time:
Prepare
Before going for a title loan, ensure that your asset is ready. If you are using a car, ensure that it is okay. It is essential to note that the car you can use for the loan must be completely yours.
Ensure that the car is working fine. Know the value of your car. The loan amount you will be given is determined by the value of the car you put up.
Choose a lender
There are several lenders for car title loans and other loans for title. You can apply through our form to get find the best one.
If you are searching for loan companies online, it is vital to note that there are basic terms for all loan companies. However, some terms may be peculiar to some companies. Some might require proof of income. Ensure that you understand the terms and conditions and are okay with them.
If you are not clear in some areas, you can discuss with the company representatives. Compare loan companies. Chose the one that satisfies you most.
Fill out the paperwork
Of course, before you get a loan, you must fill some paperwork. You provide the required information about yourself at this point. You will provide information that will identify you. Your contacts must be working and valid —contacts like phone number, email, and so on.
You must have an identity card issued by the government. This is part of your identification.
Fulfil the criteria
If you are taking this loan when you are not employed, you must be 18 years and above. You cannot give up the rights to a property you don't own. The transfer of rights reserved is for owners.
Get a co-signer or guarantor
Getting a co-signer or a guarantor for title loans may not be easy. The guarantor will stand in your place if you default. If you do not fulfill your part of the agreement, it is the guarantor who will pay the money.
Getting someone to stand for you or attest to your credit-worthiness is not easy because of borrowers who default. Also, there are unforeseen circumstances that may hinder you from repaying as you ought to.
But, if you can get a family member or a friend who is willing to vouch for you, then it is good. You can involve guarantors if they agree to take the risk.
Present the car for inspection
The lender inspects the car. As this is being done, you will turn in the car's papers, like the registration and insurance. You also turn in the car keys.
Some lenders may require that you turn in the extra keys as well. You will also turn in your social security card and license. The lender may also require Proof of Residence.
Advantages of Title Loans
A title loan is not the best loan you can get, but it has some advantages. Here are some of them:
No Credit Check
If you are taking a title loan, the lender may not bother to check your credit rating. What this implies is that you can have terrible credit scores and still get a loan.
This is a great advantage for some people. If you have a poor credit score, chances are you will find it difficult to get a loan. Traditional banks will not want to lend you money because they will go through your credit history.
With a poor credit score, banks will not have any assurance that you can pay back the loan. Therefore, they wouldn't want to commit to lending you money. This will put you at the mercy of other lenders and point you toward other loan options. One of such loan options is the title loan.
Since this loan is based on your collateral, your bad credit score will not get in the way. Your credit report does not determine your qualification for the loan.
More flexible application requirements
The requirements for getting a title loan is not much. Unlike traditional bank loans, where you have to submit documents and meet some criteria, this one is looser. States like Washington DC even have laws that protect borrowers.
With a few steps, you can access a loan much faster. This is so especially when the loan is small, say $100.
Disadvantages of Title Loans
High Annual Percentage Rate (APR)
The APR is almost always higher than 100%. In some cases, it can be as high as 300%.
Risk
Title loans are risky as payday loans. There is the possibility of the borrower defaulting and losing the car.
Restriction
Since you are using the car as collateral for the loan, you have almost no access to it for the period. Yes, you can keep driving the car, but there are limitations. If, for instance, you want to sell the car, it won't be easy. You will be required to pay off your loan and get a "free and clear" title that shows that the car is solely yours.
To get a "free and clear" title, the lien holder notifies the Department of Monitor Vehicle (DMV) in your state. In some states, you will be required to do some work, while in others, the state takes care of the entire process. States such as Washington DC have strict repossession laws to protect you.
It is best to visit your state's DMV to know what obtains. The vital information is that after paying off your loan, you will have your car back following a few steps, regardless of your zip code.
Final Thoughts
Title loans allow you to get a loan using your car as collateral. Getting these loans is not difficult. With a few steps, you can have it. However, there are terms and conditions to fulfill. If you decide to take this loan, ensure that you understand its advantages and disadvantages. These things will help you to make an informed decision. Call us if you encounter any issues! Proudly serving our customers!