Financial struggles are a common thing. At one point or another, we all strive to make ends meet or navigate tough times. Multiple factors may contribute to such difficulties, such as inflation, unexpected expenses, loss of a job, lack of savings, economic difficulties, or some previously made financial mistakes.
Some situations can create an urgent need for debt acquisition or a search for an instant source of cash to prevent interest imposition or late penalties. At times like these, an individual may turn to banks or consider using a credit card. However, borrowing from a bank often includes meticulous and time-consuming procedures.
Credit cards can also be inaccessible for people with poor credit histories or limited opportunities to improve them. Title loans are great alternatives when exploring fast cash loans. If you’re wondering how they work and what possible advantages they offer, here are all your answers summed up:
How Does a Title Loan Work?
A title loan, also known as an auto title loan, is a short and quick loan where borrowers use their car or vehicle as collateral to get a certain amount of instant cash in return. That’s why the one who wishes to borrow for a dire and urgent need must possess car ownership.
The procedure for acquiring a title loan can vary among different states and countries. For example, the process of acquiring Title loans in Florida can look similar to this: a person who needs fast cash approaches a title loan lender. They give the lender their car title (car’s ownership documents), and the lender evaluates the car’s market value and bases the loan amount on a set percentage, typically around 25% to 50% of that value. Borrowers then get a short-term of around 30 days to repay the loan acquired.
However, interest rates can differ in other localities, or some areas may impose stricter regulations on title loans, such as limitations on the number of title loans a person can take out at once.
Pros
No Credit Score Required
While traditional lenders like banks or credit unions would monitor your credit history before providing a loan, a car title loan doesn’t check your credit score. Traditional lenders check credit histories for trustworthiness and to determine interest rates. Car title loan lenders do not ask for anything since they’re short-term and have your car in their possession as collateral.
Instant Cash
Applying for a traditional loan can take weeks to get approval to earn access to funds. Applying for a title loan can take around 24 hours and only asks for proof of vehicle ownership, making it an excellent choice for people looking to acquire a loan urgently.
Cons
Risk of Repossession
One major disadvantage of title loans is that if you cannot repay the loan in the designated amount of time, you may lose ownership of your car. Since they keep your car as collateral, the inability to repay may result in selling it to retrieve the loan amount. To top it off, you might also have to pay for the costs of storing and repossessing the car.
High Interest rates
A potential drawback of title loans is that they have a high interest rate–even higher than credit card rates. However, the interest rate typically depends on the lender, and not all charge more than average; researching different lenders before opting for a loan may be a good idea.
Endnote
Despite offering their fair share of advantages, car title loans can be risky, and sometimes borrowers may enter the debt trap. The decision depends on the borrower and his circumstances. If he needs quick cash and can clear his dues in a short repayment window, opting for title loans might be best for him.
