Best Practices When Applying For Car Title Loans
Posted on April 9, 2021 in Loans
If you own your vehicle outright or owe very little money on it, then you will have the opportunity to take out a car title loan. Car title loans can offer you quick cash, usually between $100 and $10,000, in exchange for you using your vehicle’s title as collateral. Because this loan is backed by property, a car title loan is considered a type of secured loan, meaning the lender can seize the property as collateral if the debt is not repaid.
Car title loans are often expensive, with hefty fees attached and annual percentage rates frequently passing 260%. While there are alternatives that you should consider first, if you need cash fast and have no other choice, it’s important to get the best car title loan possible.
The Documents You Will Need
In order to obtain a car title loan, you will need to own the vehicle outright and have no current liens against the title. It’s possible to get a loan if you owe very little money on the vehicle, but that may be a little more difficult. These are some of the paperwork that most lenders may require to approve a loan:
- Original vehicle title showing sole ownership
- Government-issued identification that matches the name on the title
- Utility bill or other proof of residency that matches the name on the title
- Current vehicle registration
- Proof of insurance on the vehicle
- Recent pay stubs or other proof of ability to repay a loan
- Names, phone numbers, and addresses of at least two valid personal references
- Working copies of the vehicle’s keys
Some lenders may require a GPS tracking device to be attached to the car in the event of the borrower defaulting on the loan and the lender winning the right to repossess the vehicle. Some of these devices are even designed to permit the lender to disable the car remotely. You won’t need good credit to get a title loan, in fact, most title loan lenders do not even check credit. This is because the loan will depend entirely on the resale value of the vehicle and it will be offered as collateral. In addition, employment is usually not required for a title loan for the same reasons.
The Interest Rate And Fees That You Should Expect
In general, car title loans will be considerably more expensive than traditional bank loans. Interest rates will vary, but in the states where interest rates are not capped, it is typically set at 25% per month or 300% annually. This would mean that a $1,000 loan would cost $1,250 to repay at the end of the 30-day loan term to avoid going into default.
In addition to these high-interest rates, most lenders will charge a lien fee. In the states where title lending is not regulated, some lenders may charge origination fees, document fees, key fees, processing fees, or others.
Questions You Should Ask Answer Before Taking Out A Loan
There are going to be a lot of available options for anyone that is looking to take out a loan. Most companies are very eager to give out title loans because they will either get their money back plus interest or seize the vehicle and sell it for a profit. Unlike traditional lenders that are picky about who they are loaning money to, you will have to be the picky one and carefully select the best option for you. These are some of the questions you need to answer before agreeing to any loan.
How Reputable Is The Company?
Car title loan lending is one of the most popular versions of non-traditional lending. As a result, you will need to weigh and consider all types of various options. The first thing that you should consider is how reputable the company is.
Now that the internet has made it easy for companies to grow without needing physical buildings, there will be plenty of available options for loans. It’s essential to research these businesses and learn a little about their history and reputation beforehand.
What Is The Loan Company Asking For In Return?
While looking for a car title loan, make sure that you know the loan terms before agreeing to anything. There are plenty of non-traditional lenders that will ask for a large fee upfront. Sometimes the loan company won’t even accept your application without a fee being paid first, with no guarantee that you will even be approved for the loan.
Not all lenders will charge a fee, but plenty of them will. Ensure that you are aware of any loan application fees, origination fees, processing fees, or any other such fees they will charge you.
What Tools Does The Loan Company Offer?
If you are applying for a car title loan online, you will need to look into what kind of tools the company will offer. Is there any person that you would be able to speak to in the event of having a question or needing some help? You may not feel comfortable or safe providing such personal information online, is there a physical way to apply instead? Are there physical stores in your area, or do they exist at all? It’s important to know who you are entering into a loan with, so being able to speak with a representative of the company who can answer questions is an important factor.
How Does The Loan Company’s Terms Fit Your Needs?
Although you are technically the one asking for help, you should have standards of what is acceptable or not. You should try to find a company that best fits your needs in terms of loan length, amount, and interest rates. Some lenders will suggest that you borrow more than you need, enticing you by saying that you can always pay it off later, but they are not looking out for your best interests by offering this “advice.”
The more money that you borrow will equal the more money that is paid back to them. It will also mean a less likely chance to repay it, increasing their chances of seizing the vehicle as collateral. It’s important to remember that they are looking to maximize their profits, so if your standards aren’t met, you shouldn’t bend to meet theirs.
Does The Loan Come With Early Repayment Fees?
This is another hidden fee that car title loan lenders will often spring on their customers. Most car title loans are not very flexible in terms of repayment. This applies in both the ability to repay the loan and the terms of the repayment as well.
For example, if you have a loan term of six months, you may wish to pay more and finish paying off the loan in four months. Make sure that doing so would not come with a penalty for early repayment.
What Kind Of Repayment Options Do They Have?
In today’s world of technology and convenience, you should have several repayment options. Avoiding late fees can save you a ton of money, so it’s important to know the various ways that you can repay your loan. It’s important to know the various tools being offered so you can make payments on time. Remember, late payments will result in huge fees being tacked on to the loan, and defaulting on the loan could mean losing your car.
Some of the best repayment methods that you should be looking for include:
- Mailing a payment
- Paying over the phone with a debit or credit card
- Setting up automatic withdrawals with a checking account
- Paying online at the company’s website
- Using an app
- Visiting a store in person
It’s important to understand the risks of a car title loan before you take one out. Learn as much about the loan company as you can and make sure you understand their terms and conditions.
Taking out a car title loan can be a risky ordeal, but if you have tried other options first and still need money, it may be your only option. Car title loans have helped lots of people get the money they’ve needed to get out of a jam, but they have also resulted in many people losing their vehicles. Take the time to do the research and know all the details about the loan and the lender before you sign.
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