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How Car Title Loans Work: Short-Term Borrowing, at a Cost

Car title loans are the possibility of quick approval for a short-term loan however they’re usually very costly. To qualify for an auto title loan you’ll need to guarantee your vehicle as collateral and hand the title over in the name of the lending institution until it is fully repayable.

If you’re left with no options, such as if you need urgent funds for medical care, a title loan may be a good idea. However, in the majority of instances, they’re more costly than they’re worth, and you could risk losing your vehicle if you take advantage of one. Check your title loan options at Bridge Payday now.

How do Car Title Loans work

To get a loan against your vehicle it is necessary to have sufficient equity in your vehicle to pay for the loan. In most instances, you must have completed the repayment of any other loans you used to purchase the car however some lenders will allow the borrower to take out a loan if they are still paying off an automobile purchase.

The amount you can borrow is determined by the worth of your vehicle or the equity you own in the car. The higher its value, the greater cash you’ll receive. Don’t think you can squeeze the full value of your car from an auto title loan. They wish to make it easier for themselves to receive their money back. Therefore, they only offer loans that they are able to quickly and easily be able to take possession of and sell the car. Most lenders provide loans for between 25 to 50% of your vehicle’s value. They could also add a GPS tracking device in your vehicle to keep anyone from hiding your car in lieu of paying back the loan.

Although you can obtain auto title loans from storefront finance companies, you might be able to get a loan against your car through your bank or credit union as well.

Repaying the loan

Title loans are loans that are short-term usually due in between 15 and 30 days. It means you need to quickly find enough funds to cover the entire loan also often referred to as a balloon repayment but it’s not as straightforward as you’d expect. In certain instances, it is possible to extend your repayment time through “rolling across” to extend the term of your loan.

Over and Rolling Over

Instead of paying off the loan and repaying it, you can apply for the loan again for a new period of 30 days. But rolling over can be an extremely costly way to borrow. You must pay a new loan fee each time you make it. States may have laws that limit whether it is a viable option to roll over. 1

Rates of Interest

It is possible that your lender will charge you 25% interest per month, which doesn’t be too bad. If you were to use this loan for the entire year your annual rate (APR) of the interest would amount to around 300 percent.

Total Costs of Borrowing

Costs can be high when you take out loans for the title. They typically offer higher rates of interest than those you pay for credit cards. State laws typically restrict interest rates, however, these limits are high. Additionally, you’ll typically have to pay fees for the title loan. And these fees add to the costs of borrowing. Even when the fee isn’t termed “interest,” you’re still paying for it as it is included in the amount of the loan. Like payday loans, these loans can result in having to pay more than you borrowed, which adds an enormous cost to cover your expenses. 3

Losing Your Car

One of the most significant issues associated with a title loan is the chance of losing your vehicle. According to a study conducted in May 2016 by the Consumer Financial Protection Bureau, one-in-five borrowers have their vehicle taken. 4 If you are unable to pay with your payments and the lender is unable to make payments, it can take possession of your car and then sell it and retain a portion of the proceeds. In many instances, the lender keeps the entire amount of the sale’s proceeds because they were the ones who valued the vehicle in the market for reselling. 5

If your vehicle is repossessed the situation could get worse fast. It is possible that you will not be able back to work and earn money. Going to work and returning will take a lot longer. The longer commute will affect your life quality and makes it difficult for you and your family members to do daily chores like shopping or making it to school. If you don’t need to place your vehicle in the garage then don’t bother.

Other alternatives to title loans

Consider the options before you take out the title loan. The choices below may seem unappealing however they could be superior to getting cash for your vehicle. 3

  • The personal loan could be the best alternative if you have to get a loan. There is no requirement to put up collateral and you could receive a lower interest rate. Talk to your bank or financial institution about borrowing an extended-term loan.
  • credit cards aren’t the best method of borrowing, however they are loans with no collateral and aren’t subject to any risk for repossession.
  • Additional income can also help you through a difficult time. If you’re able to get another job, even if it’s only temporarily then you’ll succeed. It’s possible that the extra work will be comfortable, and it might not be feasible however, it’s something worth looking into.
  • cutting costsis more difficult to do than say however, if a few small sacrifices will allow you to get through an unpleasant experience without injury it’s probably a better choice.
  • Downgradeyour car if you own an older car that is more expensive than you’ll need. You may be able to earn cash by selling the vehicle, purchasing a car that is less costly, and keep the surplus.

If you’re required to use an auto title loan to get cash, you should plan the method of repaying it prior to taking out the loan, so you don’t leave anything to chance. In the end, getting rid of that debt should be your primary goal in financial planning.