Before we get into the reasons, let us start with the basics. There are a lot of misconceptions about title loans that make people scared about taking them. However, there are situations where a loan makes a lot of sense, which we are going to cover below.
Before considering any type of loan, keep in mind that not every bank, company, or credit union is looking out for your best interest, so you have to do your research before committing to one. Do not settle for anything that will not benefit you more than the lender, ask the right questions, and make sure you fully understand the agreement before signing any contracts.
Title loans are pretty straightforward and do not have some of the stringent income requirements that other kinds of loans have. They are faster to get approved for… but they do carry some unique risks—such as repossession of your collateral (i.e., your car), so you need to be very mindful of deadlines and fees.
You Keep Possession of Your Collateral
As the name says, all you need for this loan is a title and by that I mean you have something to give as collateral that you own and that is in your name. So, it can be a car, a motorcycle, a boat, a house, etc. The most common collateral for a title loan is a car.
The great thing about this type of loan is that you still get to keep using your car during the agreement, so there is no need to worry about taking the bus to work. You will have the money you get from your loan while still being able to go to work and run errands.
This is not the case with loans such as an auto pawn or car title pawn loans, where you leave your car with the lender, making your life harder and the loan less appealing.
Keep in mind that if you default on your loan, the lender will take possession of your collateral so you want to make sure you are in a position to pay it back by the agreed-upon time-frame.
Easy Application, Fast Approval
The process is easy and the approval rate is much higher than with other loans. So it is more likely that you get approved for a title loan than for a personal loan. This makes it a great short-term loan since it can take as little as 15 minutes for your loan to get approved and a day for you to get the money you requested.
Title loans are great for:
- Surprise bills or unexpected last-minute expenses that need to be covered as soon as possible.
- Holiday expenses like money for a big gift.
- Wedding costs.
- Maybe you have some sudden medical expenses or a mortgage payment due?
Title loans are a solid option if you need something to tide you over for a month.
Available for People with Low Credit Scores
This is a great loan in case you have a low credit score or an inconsistent income. Lost your job recently and it will take you time to find another, but the bills aren’t stopping?
A title loan is a solid option as long as you have something of collateral – usually a car. They will give you up to 100% of the value of your collateral. They will appraise it and get you on your way as soon as possible. So pick your collateral based on the amount of money you need and use a loan calculator!
Low Interest Rates
Let’s talk about interest rates. Depending on your credit score the interest rate can be as small as 2-7% if you go to a reputable company or credit union. If you make your case clear and you have a good credit score they usually give you car loan rates or motorcycle loan rates. No stress involved, in and out in as little as 15 minutes!
The interest can get higher and vary from 20% to 100% and more if your credit score is poor, but title loans will still have lower interest rates than other similar types of loans. These do vary lender to lender, so make sure you are clear about your rates ahead of time.
There is a big difference between 5% and 6%, even if it doesn’t look like that at first glance—on a $5,000 loan that is a difference of $50 in just interest, so make sure you compare different lenders in your area.
Can Be Used To Pay Off Other Debts
Paying off other debt with a title loan sounds crazy. Why would you take out another loan if you already have debt? Would not that take you even further down the rabbit hole?
Let us say you have other debt, which a lot of us do, especially in the current climate where work is not readily available.
Things are not easy for anyone so why not change that even a little bit. Is the interest of your student loan debt too high or maybe you took out a loan without reading the fine print and now the monthly payments are getting too big for you and your wallet?
Maybe something unexpected happened and now you have to take the money you put aside for your monthly payments and spend it somewhere else. It can happen to anyone, and it is more common than you think!
Say that the interest rate on one of your current debts is higher than the interest of your title loan. You could save money by taking out a title loan to pay off your other high-interest debt. Make sure you compare interest rates and other fees carefully before going down this road though, and that you’re 100% sure that you can repay your title loan by the deadline to avoid losing your collateral.
I know I have given you a lot of things to consider and think about, and maybe I managed to change your mind about title loans. If so my work here is done! When you have all the information needed title loans are not as scary as they can be at first glance, just make sure you are prepared and do not sign unless the terms are favorable to you.
As they say the more you know the better your life is, and that can be applied to loans as well! This is a great way to make your life easier so why not make the leap and do it now that you know what to expect and how to properly use the money that you can get with a title loan?