Taking Out a Title Loan: 5 Considerations to Keep in Mind
We’ve all been in a position at one point or another where we’ve been strapped for cash. Turning towards financing for financial assistance can be a smart choice if you are in the financial standpoint to do so. One common form of financing for smaller expenses that people often turn to is taking out a title loan. Learn everything there is to know about this loan type along with some important considerations to keep in mind before borrowing.
What is a Title Loan?
To those unfamiliar with the term, a title loan is a short-term loan that offers a smaller sum of money to be used for any purpose. It is a secured loan, with the title to your vehicle being used as collateral on the loan. Generally, the turnaround time for complete repayment on a title loan is as little as 30 days, which results in the loan coming with a higher-than-normal interest rate.
There are few requirements required for a title loan, with some lenders not even checking credit scores, which makes it an enticing option for many seeking funds.
5 Factors to Consider Before Taking Out a Title Loan
While a title loan can seem like a great financing option on the surface, which it certainly can be for some, there are a number of important considerations to keep in mind before taking one out:
1. You may not be able to sell the car
In order to sell a vehicle, you need to own the title to that vehicle. When looking to sell a vehicle with a title loan outstanding, you can’t complete the transaction easily. You will either need to use the proceeds from the sale to pay off the loan or you will need to pay off the loan yourself first. Some lenders allow the loan to be transferred, but this is rare.
2. You need to own your car to even get a title loan
Given that the collateral associated with a title loan is the title of your vehicle, you need to already own that vehicle to take out a title loan. For example, if you don’t have a lot of equity in a new vehicle you just purchased from a dealership, you can’t take out a title loan against that car.
3. Your car is the collateral in a title loan
As mentioned, your vehicle serves as the collateral in a title loan. This means that a failure to repay will result in the repossession of your vehicle by the title loan lender. You will have signed a contract, meaning that this repossession will be completely legal. This is the primary danger associated with taking out a title loan if you know you may not be able to repay it on time. However, some lenders do act unlawfully, so it is important to understand the terms and conditions in full. If you feel like your lending is acting unlawfully in the phase of repossession, then you are going to need to hire a professional Massachusetts Repossession attorney (or one closer to you). It is vital you understand your rights, as every state has different policies regarding repossession, providing the customer with rights against creditors or repossession companies
4. Your repayment period will be extremely quick
A repayment period of only 30 days is extremely quick for a financing option, with the only shorter loan type being a payday loan in most cases. This means that title loans are best for people who don’t currently have the cash they need, but they know that cash will be coming in the next couple of weeks. In some cases, lenders may allow you to roll your old title loan into a new title loan to give you more time, but lenders who do this may be inadvertently putting you into a cycle of debt.
5. Your interest and fees can quickly add up if you aren’t responsible
As briefly mentioned, title loans may be rolled into new title loans which ends up compounding the interest you owe. Given the short tenor, title loans often come with high rates that are the equivalent of a 300% APR. If you take out a title loan and can’t pay for multiple months, but the lender allows payment plans, you may be paying large amounts in interest and fees. Partner with a lender who is up front about all payments and fees.
Borrow a title loan safely today
For those who have a strong financial standpoint, taking out a title loan can be an excellent way to gain access to a small sum of cash for an emergency expense. So long as you are completely certain you can meet the entire repayment in your allotted time, the risk of a title loan is minimized. Always be sure you can afford a title loan before taking one out given the inherent risk of putting up the title of your vehicle as collateral.
