Pros and Cons of Car Title Loans

Posted by RichardMax on December 23rd, 2020

Regardless of how much you save for the future, unexpected expenses can sometimes arise. When you find yourself in this kind of circumstance, a car title loan is one way of obtaining the cash you need.

This short-term loan uses your vehicle as collateral. In return for the secured loan, you must hand over the title and a copy of the car keys until you pay off the loan. Here is a list of pros and cons that will help you decide if this type of loan is right for you.

Pros

Fast Money

The major advantage of obtaining a car title loanis that you can obtain money quickly. In most instances, vehicle title loans require you to simply complete an application and can have cash in your account in about 24 hours.

No Credit Check

Securing a loan with a poor credit score can be difficult. Fortunately, vehicle title loans don't base their decisions on your score. Borrowers with poor credit scores can still obtain title loans if their vehicle is eligible. This is a huge benefit to those who own their vehicle but require financial help without a credit check.

You Keep the Car

While a vehicle title loan means you are turning over your car’s title in exchange for a loan, you still get to keep and drive your car as long as payments are being made. In this way, car title loans are a convenient way to get funds without having to give up any of your assets.

Cons

Borrowing Limits

Typically, the loan is less than the car's value; this assists the company if you can't afford to pay the loan. The amount awarded depends on your car's value. For instance, the lender might cap the loan amount at 50% of the vehicle's value, or some other proportion.

Additionally, you must own your car outright in order to qualify for this loan, which means you cannot be paying off your car when you apply.

Elevated Interest Rates

Since these loans accept bad credit, the interest rates tend to be much higher than traditional bank loans. Beware that these rates can also increase over time, especially if you don't repay the debt promptly. Although you can keep your vehicle throughout the loan period, failure to pay off the loan could mean losing the vehicle. When taking out this type of loan, it’s important to know all the repayment terms and be sure that you can comply with them.

Excess Fees and Liability

It’s critical that you work with a reputable lender and really read through the fine print of any title loan since some lenders will impose excess fees that will make repaying the loan that much harder.

Read through the contract and terms and look for any additional charges ahead of time. You want this loan to help you in the short term and not make things worse for you down the road.

Conclusion

Although title loans are a fast way of securing loans even with bad credit, they come with various drawbacks to keep in mind before you apply.