In a pinch financially and thinking, how do title loans work? Before you commit, let us help you understand how you can take out a title loan on your vehicle and how they differ from other types of cash loans.
What is a title loan?
Title loans are short-term loans that are secured using your vehicle as collateral. In a title loan transaction, a lender will extend an offer for a cash loan that's a percentage of your car's present value and condition. You'll then turn over the title and continue to drive your vehicle until the loan is paid.
The interest rates on title loans may be higher than other loan types, but they also offer flexibility to individuals who are in the process of building up their credit. Title loans have the added benefit of offering a larger amount of money than most unsecured loans.
Title loans should be used sparingly, for short periods, and only when you feel confident you can make the payments on time. When you sign on the dotted line for a title loan, you're accepting that if you miss payments, the lender can repossess or sell your vehicle.
Title loans vs. other personal loans
When you consider how title loans work vs. other personal loans, the key difference is that a title loan is secured while paycheck advance loans and most online loans are unsecured. A secured loan means you provide physical collateral to a lender, like the title to your vehicle or home, which becomes theirs if you don't pay.
Unsecured loans, on the other hand, are loans that are issued without collateral. Paycheck advance loans and online installment loans are examples of unsecured loans. Because there is no collateral exchanging hands with the lender, they may verify your ability to repay differently. Lenders of unsecured loans typically require a credit check and proof of income to apply. This protects them from lending to borrowers who won’t be able to repay the loan.
Weighing the options
A title loan may be the right choice if:
- You need money quickly – When you offer a vehicle title or other collateral, loans can be processed promptly, often within an hour.
- You have a free and clear title – This is an essential requirement for a title loan. If you’re still paying off or leasing your car, you won’t qualify for a title loan.
- The repayment plan works for you – Some title loans are designed to be paid back within one month, while others have longer repayment schedules.
An unsecured loan may be a better option if:
- You plan to repay on a structured plan over a few years – A personal loan will often come with a 2 to 5-year repayment plan with a set monthly payment throughout.
- You don't have a vehicle or home as collateral – Since unsecured loans don't require physical property as collateral, they are open to a broader audience of potential borrowers.
No matter which type of loan you end up choosing, remember that it's always essential to understand the fine print and associated fees before you borrow. The last thing you want is to get to the end of the life of the loan and realize there’s more to pay.
Notice: Information provided in this article is for informational purposes only. Consult financial advisor about your financial circumstances.
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Original Source: What Makes Title Loans Different From Other Cash Loans?