Ever since the economic meltdown of the mid-2000s, and the credit crunch that followed thereafter, folks without picture-perfect credit and a spotless record of repayment have had a bit of a tough time getting their hands on loans and quick capital.
Nontraditional lending services have popped up left and right to meet these needs, offering individuals an opportunity to secure the kind of capital they need without the hoops, hurdles, and obstacles placed in their way that traditional lenders inevitably bring to the table.
At the same time, not all short-term loans are created equally. While some loans may suit one borrower, another may be a stepping-stone to a slippery slope of financial disaster. However, with the proper understanding of short-term loans, borrowers may find financing that can help them get back to recovering from the financial missteps of the past.
Below we highlight a number of different nontraditional lending opportunities that you might want to consider taking advantage of moving forward. Let’s dive right in!
Car Title Loans
Title loans are one of the fastest growing financing options for borrowers with poor credit. Auto title loans allow borrowers to use their vehicle’s equity as collateral. However, they are not the same as an auto equity loan.
Most borrowers that consider title loans need quick cash in large amounts, a need that can’t be fulfilled by other short-term options like payday loans. The requirements for title loans are also less stringent. Title lenders usually require a clean title, a government-issued ID and a borrower that is over the age of eighteen. However, some lenders do require additional documents like proof of insurance and income.
While not as expensive as Payday Loans, car title loans are still costly and in some states are considered predatory. You can expect the interest rate on a title loan to range anywhere from 25% - 40% a month. Additionally, if a borrower is not able to pay off their loan or make payments towards the accrued interest, the lender has every right to repossess the loan’s collateral. For some, the threat of repossession is a deal breaker. For others that are confident in their ability to repay, a title loan is a great option for cash as soon as the next day.
Sometimes described as a cash advance loan, payday loans allow individuals to take out a line of credit against the paychecks that they are already bringing home – usually with higher than traditional interest rates attached to them.
Offering quick cash to anyone and everyone with a steady job and a provable paycheck, payday loans are going to be based off of your take-home pay (according to your checks) and can usually be taken advantage of for anywhere between $500 and $1500 or more.
You will obviously want to understand the repayment terms that you are agreeing to before you jump on top of an opportunity like this. You’ll need to know how quickly you need to repay your payday loan, the interest rates associated with your payday loan, and any prepayment penalties you may end up being strapped with if you pay off your payday loan ahead of schedule.
You will also want to know how quickly your lender will disburse your funds and what methods your lender uses to deliver them – in cash, with a check, or a direct deposit into your account.
Installment loans are another popular type of alternative lending option available to be taken advantage of these days, giving individuals the chance to repay their loan over a scheduled amount of time with scheduled installment payments made every step of the way.
These kinds of loans can be incredibly advantageous to leverage by folks that know exactly how much money they need right up front and right out of the gate, as well as those that have the financial discipline to repay these types of loans over time according to the schedule.
Again, interest rates are usually a bit higher than the interest rates you’ll encounter from traditional lenders when you go with an installment loan. You’ll also want to look into any prepayment penalties, as most of these lenders count on high interest rates over a set amount of time to make their money.
Title Pawn Loans
According to the financial industry, nearly 80% of the US population over the age of 18 simply wouldn’t be able to cover an emergency bill of $500 or more.
Should you or someone you care about find yourself in the middle of a financial emergency without cash on hand to cover your expenses, title pawn loans – sometimes just called title loans – give you an opportunity to put up your automobile as collateral to secure plenty of funding for the loan that you need so desperately.
These kinds of loans work the same way that all other collateral loans work. The title of your vehicle is your collateral for the loan amount that you take out. As long as the loan remains active and payments are made as scheduled, you will maintain ownership of your vehicle. However, title loans differ from title pawns in that title loan lenders allow you to drive your car while pawnbrokers keep your car during the duration of your title pawn.
Different pawnbrokers are going to have different repayment schedules, interest rates, and maximum values that they are willing to offer their clients. Usually these kinds of loans are dependent upon the actual value of the vehicle you are putting up for collateral – but it’s always encouraged to take as little money from lenders as possible so that you can repay the loan quickly and gain total ownership of your vehicle again without any headache or hassle.
Auto Equity Loans
Auto equity loans work very similarly to auto title loans, but can be taken advantage of regardless of whether or not you actually have the title in your possession or not.
You’ll be putting up the equity in your vehicle that you have been paying off on as collateral against the loan you are leveraging, and as long as you maintain the financial discipline you need to continue making payments you won’t have anything to worry about. Should you miss a handful of payments or begin to slip behind and negate the terms of your auto equity loan, your vehicle may be in jeopardy and your credit score may incur significant damage.
At the end of the day, most people agree that it is nice to know that you have plenty of opportunities available to take advantage of should you need quick cash in a hurry without a picture-perfect credit score.
But like every other major financial decision you make in your life, you want to be sure that you can cover all of your loan repayment terms without any headache or hassle, that you aren’t going to become even more financially strapped later down the line, and that you’re making a smart move for the short and long-term.
Use the information above to help you find the right lending opportunities and you won’t have much to worry about moving forward.