Car title loans: What they are and how they work Advertiser Disclosure Advertiser Disclosure We are an independent, advertising-supported comparison service. Our aim is to assist you make better financial choices by providing you with interactive financial calculators and tools, publishing original and objective content. We also allow users to conduct research and compare information at no cost and help you make informed financial decisions. Bankrate has partnerships with issuers such as, but not limited to American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Earn Money The offers that appear on this site are from companies that compensate us. This compensation may impact how and when products are featured on the site, such as, for example, the sequence in which they appear within the listing categories and other categories, unless prohibited by law. Our mortgage, home equity and other home lending products. This compensation, however, does have no impact on the information we publish, or the reviews you read on this site. We do not cover the vast array of companies or financial offers that may be available to you. Barry Winiker/Getty Images
5 minutes read. Published on 19 October, 2022.
Written by David McMillin Written by Contributing writer David McMillin is a contributing writer for Bankrate and writes about topics like mortgages, credit cards tax, banking, and travel. David's mission is to assist readers discover ways to save money and worry less.
Editor: Rhys Subitch Editor: Rhys Subitch Auto loans editor Rhys has been writing and editing for Bankrate since the end of 2021. They are committed to helping readers gain the confidence to manage their finances through providing clear, well-researched facts that break down complex subjects into digestible pieces. The Bankrate guarantee
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We are compensated in exchange for the placement of sponsored products and services, or when you click on specific links on our site. This compensation could impact how, where and in what order items are listed and categories, unless it is prohibited by law for our loan products, such as mortgages and home equity and other products for home loans. Other factors, such as our own website rules and whether the product is available within your area or at your own personal credit score may also influence the way and place products are listed on this site. While we strive to provide a wide range offers, Bankrate does not include specific information on every financial or credit products or services. Every loans are risky if they're not repaid on time. But a title loan has a particularly threatening result if you don't meet your payment obligations and the lender may take your vehicle. Before you consider getting the title loan it's important to be aware of the possible disadvantages of using your car as collateral to borrow money. How do you define car title loans? A car title loan, or "pink slip loan," allows you to take out loans ranging from 25 to 50 percent of the worth of your vehicle in exchange in exchange for giving the lender you the title for your vehicle as collateral. These short-term loans generally start at $100 with repayment periods between 15 and 30 days. Title car loans target those with past credit challenges who need cash quickly. The majority of lenders have low to no credit requirements -and some don't have any . The application process is typically simple, and if accepted, you could anticipate receiving funds within 24 hours later -- often, even earlier. The ease of access also means that these loan products come with steep rates of interest. Certain states restrict the amount of interest lenders are allowed to charge but others do not have any restrictions. Some states also have a ban on lenders are not permitted to offer car title loans to consumers. If you reside in the state where the use of car titles loans are allowed, then you will generally need to to obtain an loan. Some lenders will offer these loans if your vehicle is almost paid off, however this is less common. How do titles loans work? Car title loans come in a range of different varieties. There are loans that are one-payment loans which means that the borrower is required to pay for the total sum of the loan and the interest fee within a month , or as. They are repaid in the course of three or six months, depending of the lender. While the word "car" may be in the name of the product, these loans are also offered for boats, motorcycles and other recreational vehicles. You can apply online or in person, but you'll need to visit an actual location to present your car to the lender. Also, prepare to present the lender with clear title and a photo ID when applying for a title loan. The lender might also require keys. The car will remain in your possession during the repayment period unless you default on the loan. To demonstrate how these loans function, suppose you own a car worth $5,000, and you are in a situation of emergency situation and require $1,000. A title loan lets you borrow against your vehicle so you can receive the $1000 quickly. Like a mortgage, which uses your house as collateral, a title loan utilizes your car as collateral. In order to get the title of your vehicle back the loan must be paid in full, including the steep costs the lender charges to provide the money. These fees typically comprise an average monthly finance fee of 25 percent, which amounts to an annual percentage rate at 300 percent. On a $1,000 loan, you'll pay an additional $250 in interest even in the event that the loan is repaid in just 30 days. If you're not on time with your payments and late payment penalties are determined then the loan can cost quite a bit. Some lenders will also charge processing, origination and document fees, driving the cost of borrowing more. It is also possible that you will be required to pay for and obtain an insurance plan to cover roadside repairs for your car. The downsides of title loans While applying for a title loan may be easy, the convenience comes with serious costs and risks, according to Graciela Aponte-Diaz, director of federal campaigns for the Center for Responsible Lending. "If you can't pay back the loan at the time it's due, it's rolled over into another cycle, which incurs more costs," says Bruce McClary the senior vice president of communication at the National Foundation for Credit Counseling. "It can create a difficult circumstance for those already struggling to pay back. It's the most precise definition of the cycle of debt." The main drawback, though, is the possibility of losing your vehicle. If you can't repay the loan, the lender could take your car and sell it in order to recover the money. This isn't common. A study from the found that 20 percent of those who get title loans are able to seize their cars. In addition, "some car title lenders have a GPS device, also known as"kill switch"- that can prevent the borrower's vehicle from beginning by using this method as a means of collecting the debt or making it easier to seize the vehicle," Aponte-Diaz adds. Because of the risk of losing your primary source to travel, it's easy to understand the way a title loan could be a stressful experience. Other alternatives to loans With all the serious disadvantages, McClary recommends reaching out to traditional banks and credit unions to identify less costly loans. You can also utilize a credit card when you have one to meet your short-term cash needs. Even if you don't have a bank account, have a lower credit score or have had financial issues in the past, it's worthwhile to look into all your alternatives. "It's fascinating how flexible traditional lenders can be," McClary says. "There are a lot of credit unions who are prepared to deal with unbanked customers." Apply for a personal loan Even though getting personal loan could be difficult when you have bad credit, you may have options. Certain online lenders may be qualified for. If you're a credit union member You can also try communicating your situation to the banker. They may approve you for the loan in light of the strength of your connection and your financial record. Or you can request a relative or friend with a steady source of income and a strong credit rating to apply with you , thereby increasing the odds of getting approved. Consider a payday alternative loan Payday alternative loans are another less costly alternative to think about. They're offered through certain credit unions, however you have to be a member to access these loan product. The loan amounts vary between $200 and $2,000 payable over one to 12 months. The application fee is capped at $20, and you'll not pay more than 28 percent of interest. This is what makes payday alternative loans more affordable than car title loans and also bad credit personal loans. Make use of a credit card can also use a credit card if you are facing a financial crisis. You can also pull funds from your credit card using the use of a . Be mindful that the interest rate for cash advances tends to be more than what you pay for purchases -- anywhere from a to 30% variable. There's also no grace period, and interest will start accruing right away. Expect you to incur an ATM fee to withdraw funds. McClary does not recommend adding to credit card debt however he suggests it's a better choice over an auto title loan, as you're likely to pay less interest than you would with a car title loan. The bottom line Car title loans are a convenient solution to access cash quickly. Still, the costs are generally not worth the risk involved and you may end up in a worse position than you were before taking your loan. Look at alternatives that are less expensive, like credit cards, private loan as well as a payday alternative loan prior to settling on a car title loan. But if you've exhausted all alternatives and you have to take the car title loan, be sure to be sure to read the fine details. Title lenders have to provide you with loan terms in writing before signing. Federal law requires them to be honest and upfront about the total amount that they will charge for the loan.
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Written by a contributing writer David McMillin is a contributing writer for Bankrate and covers topics such as mortgages, credit cards tax, banking, and travel. David's aim is to help readers understand how to save money and also stress less.
Editor: Rhys Subitch The edit was done by Auto loans editor Rhys has been writing and editing for Bankrate from late 2021. They are committed to helping readers gain the confidence to manage their finances by providing clear, well-researched information that breaks down otherwise complicated subjects into bite-sized pieces.
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