Car Title Loans: 3 Things to Know Before Getting One
You never know when you may run into a financial emergency. You may need to pay huge bills way above your paycheck. This is where car title loans come in.
A car title loan can help you pay off your debt or financial emergency quickly. If you own a vehicle, you are eligible for a car title loan. Although this is a quick and easy loan, you need to pay high fees, and you risk losing your vehicle.
We will talk about three things to keep in mind before applying for a car title loan.
1. You need to own a car or Have Some Equity in it
To apply for a car title loan, you need 100% ownership of the car or have some equity in it. Equity, in this case, is the value of the car minus any debt you owe on it.
A car title loan is a secured loan that uses your car as collateral. The loan is generally 25% to 50% of the car’s value. Car title loans may range from $100 to $5000.
Car title loans are also known as “pink-slip loans”, “title pawns” or “title pledges”. The name “Pink Slip” comes from the pink paper used for printing car titles in California.
You also need to show the lender your car, a photo ID, and the car’s insurance along with the car title.
Once you are approved for a car title loan, you hand over your title to the lender as collateral for the loan. Once you repay the loan, you get your title back.
2. High Fees and Interest Rates
Two of the major disadvantages of a car title loan are high fees and high-interest rates. It is quite normal for lenders to charge around a 25% interest rate per month. This means that the annual percentage rate (APR) is more than 300%, which is much higher than other forms of credit.
Suppose your car title loan amount is $1,000. With a 25% interest rate, you owe the lender $1,250 plus any additional fees.
Before you apply for a car title loan, check with the lender for APR and the total cost of the loan. You can then compare this with other lenders to choose the best offer for you.
3. You Could Lose Your car
Once you apply for a car title loan and cannot repay the amount you borrowed, the lender may just roll over the loan into a new one. This may have added fees and a higher interest rate.
Once you begin the cycle of rolling over loans, you may find yourself in a debt trap. It may come to a point where you cannot repay the loan, and the lender will have to repossess your car.
To even get back the car, you may need to pay off the debt plus more fees.
Alternatives to Car Title Loans
Car title loans are not the only way to get instant cash. Multiple options can support your financial emergency and are less expensive than your car title loan. Let’s have a look at our options.
Payday loans are the perfect alternative to car title loans. You do not need to place collateral for your loan, and the interest rates are fixed for each state.
Payday loans are also short term and generally last from one to six months. The loan amount depends on your income as lenders expect you to repay the loan when the next paycheck is due. You can apply for payday loans online at payday. They provide you fast credit with minimal loan application procedures.
Personal Loan with Co-signer
You can qualify for an unsecured personal loan by co-signing it with a person who has good credit. The co-signer has to take on a lot of risks to vouch for your loan. Their credit score may take a hit if you fail to repay the loan on time.
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Credit Card Cash Advance
If your credit card has an available balance, you can take a cash advance which may have a lower APR than a car title loan. However, cash advance APRs are higher than regular APRs.
When you run into a financial emergency, ensure that you opt for less-expensive loans, but only if you can pay them back on time. Make sure to look for various options such as payday loans before opting for a car title loan.