How Do Car Title Loans Work?
There are a seemingly endless number of loans available to people depending on how much you need and what your credit number is. If you’re in need of quick cash and your credit is less than stellar, a car title loan could be a great way to get the cash you need from the lender of your choice.
Car title lenders issue the loan for a specific amount of money – the average is $1,000 – over a short period of time. Borrowers obtain that loan when they give up the title of their vehicle up to the lender as collateral. The borrower must own their vehicle in full and they will typically have 30 days to repay the loan.
Car Title Loan Options
Once you understand how they work, you can look to apply for one either online or at a local lender. So how do they work?
When you reach out to an online provider or local lender, you show the lender several documents. These typically include an application, the title of your vehicle that you are putting up for collateral, and a photo ID. Many lenders will ask to either see a photo of the car or inspect it in person. Lenders will also often ask to be given a spare set of keys. They may also ask for the borrower to install a GPS tracker or a remote immobilizer in the car. This will make the car easier to locate in the event of a repossession.
Once you are granted the loan, you typically will have 30 days to pay the loan back in full, including any interest you may accrue. If you are unable to pay back the loan within the 30-day period, you risk the possibility of having to pay additional fees and interest on top of whatever you still owe from the original loan.
Different options when comparing Car Title Loans
There are two kinds of car title loans. Single-payment loans require borrowers to repay the loan in one lump sum – usually in the aforementioned 30-day period – with an average APR of 300%. Installment loans let the borrower pay back the loan in multiple payments. The lender typically offers a repayment period of three to six months and an average APR of 259%. Many different auto's can be used for a title loan be it a car, boat, truck or SUV.
To give you a basic idea of how much you should expect to pay back if you take out a car title loan, let’s look at a single-payment loan of $1,000. By the end of the month – the typical repayment period – you can expect to accrue a number of fees that equal approximately 25 percent of the loan’s total value. That means that if you borrowed $1,000, you can expect to have to pay approximately $1,250 by the end of the month. It’s a solid option if you are confident that you will be out of a financial dry spell within the month. If your financial struggles will likely last longer than that, a car title loan may not be for you.