How Do Car Title Loans Work? The Basics Explained
Do you have an emergency fund?
If you don’t have one, how do you plan to pay your bills if you suddenly lose your job? What if you marry into debt or go through a divorce?
There are many financial emergencies to plan for, and not having a separate savings account to pay for unexpected expenses could put you in a cycle of debt. Of course, some would say, borrowing money isn’t that bad, and they’re right.
Some loans are indeed helpful, but what about car title loans? Do you know if taking one out is worth the risk? If you’re not sure, read on so you can learn about how auto title loans work.
The 411 on Car Title Loans
When you apply for a car title loan, you’re basically borrowing against your vehicle. It’s similar to how a mortgage is backed by your home, and just like a mortgage, your vehicle has to have equity.
That means you have to own your vehicle. Another thing you need to know about auto title loans is that it’s also applicable to other types of vehicles. You can use your motorcycle, boat, or recreational vehicle as collateral for a car title loan.
One of the benefits of title loans is anyone can get one even with bad credit. Most lenders don’t run a credit check. You just need to prepare a clear title, proof of insurance, and an ID.
Approval is also fast (around 15 to 45 minutes). Once approved, the lender will hold onto your title until you pay off the debt.
Are Title Loans Worth the Risk?
If you’re confident that you can pay off a car title loan on time, and you’ve exhausted all other options, then go for it. Make sure though that you do your homework and only borrow from reputable lenders. You can visit this website for more information.
However, if you haven’t explored the alternatives to title loans such as traditional lenders, credit unions, and so on, think twice before you use your car as collateral. Remember auto title loans have a short repayment period, plus the interest rates are often higher compared to a traditional loan.
If you default on your payment, the lender will take your car, and you can’t get it back. Auto title lenders have the right to sell the vehicle they’ve repossessed, and some states allow them to keep all the proceeds from the sale.
Don’t Drown in Debt
Borrowing money isn’t bad as long as you take the time to understand the terms of a loan. For car title loans, you should only consider applying for one if you’re 100% sure you can pay it back on time, and if you know that you’re borrowing from a reputable lender.
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