Checking Out the Financial Credit Zone

Are you in dire need of cash but cannot apply for a bank loan? If you own a car, filing for a car title loan may be the solution you are looking for. Also known as a title loan, car title loans is a type of short-term credit wherein a car title is provided as collateral. The loans can be taken out from retail outlets similar to that of payday or cash advance loans, or can be applied for online and the money transferred to a bank account.

Today car title loans are among the most popular short-term loans in the US, and one of the main reasons why is that the money borrowed can be acquired within minutes of the loan being approved. Typically, car title loans for as little as $100 can be acquired within 15 minutes after its approval. These types of loans do not also consider credit score when reviewing loan applications, making them attractive to people with bad credit. However, some lenders will not loan under $1000 to people without any credit due to the high risk involved.

The maximum amount of a car title loan depends on the value of the collateral, which in this case is the car. Typically, lenders will offer as much as 50% of the resale value of the car, though some will make higher offers. The borrower, on the other hand, must possess a title that is (clear), meaning that the vehicle must be paid in full and not linked to liens or current financing. Some car title lenders may also require borrowers to have full insurance on the vehicle to be used as collateral.

However, car title loans do have one major disadvantage which they share with payday loans: a high interest rate. Though it varies from one state to another, interest rates for car title loans usually range from 36% to as much as 651%. The payment schedules also vary, though the borrower will most definitely have to pay interest due once the due date arrives. Once the loan reaches the end of its term, the full outstanding amount may be due in the form of a single payment. Borrowers who are unable to pay off the loan at this time may opt to roll over the balance and take out a new title loan, adding further to the debt. Because of this, federal regulations have been put in place to limit the number of times a borrower can roll over a loan in order to keep that borrower from entering a perpetual cycle of debt.

If you are unable to pay back the car title loan or you are late with the payments, the lender may seek to recover the car and sell it in order to recover the money you borrowed. This is, however, considered as a final option by many lenders as it may take months to recover the vehicle. Repossessing may also prove counterproductive due to the costs of repossession, auction costs, court costs and other related expenses. Instead, the lender may opt to use aggressive collection tactics such as frequently calling borrowers or contacting their references in order to compel borrowers to fulfill their debt obligations. During this time, the lender will not be collecting payments and the value of the vehicle may depreciate. Some states also require car title loan lenders to hold the vehicle for 30 days in order to allow borrowers to catch up with their payments.

If you are planning to take out a car title loan, make sure to look up the title loan restrictions and regulations for your state. The federal government has already started to assume jurisdiction over car title loans, though it is still mostly up to the states to regulate lenders. In the state of New Hampshire, for instance, limit car title loans to a 36% annual percentage rates (APR) while Iowa has an APR limit of 35%. Some states such as Alabama, Mississippi and Missouri have very lenient regulations on car title loans. It should also be noted that, regardless of the state where the lending business is located, lenders are forbidden from making car title loans with an APR greater than 36% to members of the US military and their next of kin.

About the Author:

Harriet has worked for credit counseling institutions for nearly 2 decades, specializing in helping people manage and pay off their loans. Now retired, she is a regular contributor to Car Title Loan.

Article Marketing

26 people like this article