What is a Title Loan?


title loanA title loan is simply a personal loan where your car acts as collateral. The name comes from the car title, the legal document that shows you own a vehicle. If you fail to make repayments on a title loan, the lender can seek a court order to take ownership of your car.

What are the pros and cons?

The main advantage is that lenders often carry out little or no credit checks because they can be confident of getting back their money through selling the car. This means a title loan can be an option if you have a poor credit history or need money quickly and cannot wait for a lengthy application process.

The main disadvantages are that the interest rates are usually high compared to other secured loans such as the financing to buy a new car, and of course the risk that you might lose your car. Unlike second mortgages with houses, you cannot get a title loan if you have any outstanding financing on the car.

Something that can be an advantage or a disadvantage is that the monthly payments can be low, sometimes only consisting of paying the interest charge, with the balance paid off in one go at the end of the loan period. This can be useful if you have immediate cashflow problems, but it does mean you will need to be disciplined enough to be sure of having the full amount to repay at the end.

How much can I borrow?

This varies from lender to lender. As a very rough rule of thumb you’ll be able to borrow half of the car’s current resale value taking into account its age and condition.

Will I really lose my car?

In practice, some title loan lenders may give you extra time to settle up late payments (albeit with additional interest charges) or even allow you to “rollover” into a new loan, figuring the delay is worthwhile to avoid court costs and the hassle of repossessing a car. However, they are under no obligation to do this, and you should never assume or expect you will get away with missing payments.

What’s the local picture?

The precise laws governing title loans vary widely from state to state, so it is important to read up on the situation that applies where you live. Some of the variations include how much you can borrow with a title loan, how much your monthly payments can be in comparison to your income, and whether you need to show proof of your ability to pay. Some states have a cap on the interest rate, though sometimes this only covers loans up to a certain amount.

What’s in a name?

The concept of a title loan exists in many countries around the world. In some cases it is the same system under a different name, such as a secured auto loan. In other cases, such as the United Kingdom where the term logbook loans is used, the rules are slightly different. With a logbook loan, if you don’t repay as agreed, the lender has the right to take possession of the car immediately rather than having to go through a court procedure.

photo by stevendepolo

Written by Jon the Saver

This post was written by yours truly, Jon Elder. My mission is to help you succeed in your personal finance life. Join me on the journey to financial freedom! You can subscribe through RSS FEED or EMAIL updates. You can also find me on TWITTER
and FACEBOOK
. Happy investing 🙂

Jon the Saver

This post was written by yours truly, Jon Elder. My mission is to help you succeed in your personal finance life. Join me on the journey to financial freedom! You can subscribe through RSS FEED or EMAIL updates. You can also find me on TWITTER and FACEBOOK . Happy investing 🙂

More Posts - Website

Related posts:

Google+ Comments

banner
%d bloggers like this:
Read previous post:
credit card
Why College Students Shouldnâ™t Have Credit Cards

There was a time when it was impossible to get a credit card if you didn't have a proven means...

Close