As of 2020, the US was home to an estimated 286.9 million registered vehicles. Passenger vehicles, including cars and pickup trucks, account for over a third of that. Motorcycles are also part of that count, even if they only represent a little over 3% of the market.
If you own one of those registered cars, pickup trucks, or motorcycles, you may be eligible for title loans. A title loan, in turn, is one of your options if you need access to cash as soon as possible.
If you haven’t taken out a title loan ever, don’t worry, as we’re here to discuss all the basics you need to know about it. Read on to learn what these loans are, why you might want to consider applying for one, and what you need to qualify.
What Are Title Loans?
Title loans go by many names, including title pawn loans, pink-slip loans, or title pledges. All these terms refer to short-term loans secured by a motorized vehicle’s title. A borrower pledges their vehicle as collateral in exchange for a loan.
Auto and motorcycle title loans are short-term loans as you usually need to pay them back within a month or less. Some title lenders have a 15-day repayment period, while others extend theirs to 30 days.
As for how much you can borrow, it can be anywhere from 25% to 50% of your vehicle’s current value. So, if your car’s actual worth is $10,000, the lender may offer you a loan principal of $2,500 to $5,000.
Come due date; you need to pay back the entire loan, including interest and fees. You can check out this guide for more info on title loan interest rates and fees.
In any case, the most crucial thing is to pay back a title loan on its due date or even earlier if your finances allow for it. What you should absolutely refrain from doing is not paying back the loan on time.
What Happens If You Don’t Pay Back a Title Loan?
Like any other loan, a title loan is a legally binding contract between a borrower and a title lender. The contract should explain in detail the consequences of non-repayment of the loan. These include late fees and other charges associated with late repayments.
Loan contracts also indicate the lender’s right to seize ownership of the collateral. In the case of a title loan, the collateral is the vehicle itself used to secure the loan. So, if a borrower doesn’t pay back the loan at all, the lender has the right to “repossess” the vehicle.
That means the vehicle’s title would undergo a transfer of ownership to the lender. The lender can then sell the seized vehicle to recoup the money they lost due to non-repayment.
Why Consider Taking Out a Title Loan Then?
As there’s collateral involved, title loans are easier to qualify for than bank loans. For example, you can usually get the funds you need the same day you apply for motorcycle and car title loans. In contrast, traditional bank loans take days or even weeks to process.
Moreover, most conventional loan lenders require borrowers to have a good credit score. Unfortunately, only 70% of creditable consumers in the US have such standing. The rest have subprime scores, which make them less likely to qualify for typical bank loans.
As for title loan lenders, they don’t consider credit scores a major qualifying factor. Again, this is because they require security or collateral for their loan products.
So, if you need immediate access to funds and have a subprime credit score, a title loan is one of your options.
What Requirements Do You Need to Be Eligible for a Title Loan?
First, as the borrower, you must be the vehicle’s registered owner you’ll use as collateral. If there’s another registered owner, you need their authorization. They need to sign the title loan agreement contract too.
Most lenders also prefer a lien-free title, which means there should be no other loan on the vehicle. However, some do accept non-lien-free titles, so long as the borrower has equity on the vehicle. Liens include outstanding or active auto loans and motorcycle loans.
You must also be at least eighteen years old, a US citizen, and a registered state resident. Creditors need to verify your address, too, as well as your employment or source of income. For these, you can use your driver’s license, proof of billing (such as a utility bill under your name), and payslips.
If you’re a business owner or self-employed, you can submit your latest tax return. For most lenders, this is a valid proof of income. However, some may require you to provide copies of recent bank statements.
Proof of valid vehicle insurance is another requirement, as well as a duplicate set of keys.
Once you’ve prepared all requirements, you can take your ride to the title lender’s office. They will inspect your vehicle to assess its value, and from there, give you a loan offer.
If you find the loan terms acceptable, carefully review the legal paperwork. The contract must comply with the Truth in Lending Act (TILA).
Under TILA, lenders must put into writing all costs associated with the loan. So, make sure there’s a detailed breakdown of all the loan fees you might pay for. At the very least, these should include the interest rate or annual percentage rate (APR) and late fees.
If everything is in order, sign the paperwork and submit the requirements. The lender will then issue the loan funds right there and then.
Always Pay Title Loans on Time
Always keep in mind that title loans, although quick and convenient, come with a high cost. That’s why it’s best to take out one only if you have a dire need for emergency funds. Most importantly, pay the entire loan, complete with interest, on or before its due date.
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