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A title loan is a financial product that involves collateral. The money borrowed is secured against the title of the customer’s vehicle, and it is possible to borrow between 25 to 50% of your vehicle’s total value through this method.

Title loans however are not for everyone. This guide discusses in more detail the nature of title loans and what this type of borrowing entails.

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What Is A Title Loan?

 

It is important to understand exactly what is a title loan before discussing whether this type of financial product is right for you. Title loans are a secured loan against a borrower’s vehicle. Vehicles include cars, motorcycles and trucks.

Since the vehicle is used as collateral, the amount of money that the customer can borrow depends on the value of the vehicle as you can normally borrow up to half of your vehicle’s total value. Usually borrowers will have to take their vehicle for an inspection in order to determine the value. Title loans can then be offered for as little as $50 or even as much as $20,000.

A title loan is a short term loan. Normally you are still able to drive your vehicle whilst borrowing a title loan since the lender will just hold the title.

Customers usually have to repay the title loan in 15 or 30 days. Once the loan is repaid in full, the borrower will get the title back.

 

How Do I Apply For A Title Loan?

 

It is usually very quick and easy to apply for a title loan. After taking your vehicle for an inspection to determine its value, you must then take your vehicle to the lender to inspect, as well as the title paperwork. You will then fill in the necessary paperwork to find out if you are eligible for a title loan. If your lender approves your application, they will arrange for the funds to be transferred to your bank account and for the title of your vehicle to be changed.

It is essential to only borrow a title loan if you are certain you will be able to comfortably meet the repayments in full. Otherwise if you default on your loan, you could face the risk of losing your vehicle as the lender could repossess your vehicle, although lenders often allow you to extend the loan repayment period first.

 

Are Title Loans Different To Payday Loans?

 

Title loans are secured loans whereas payday loans are unsecured. This means that title loan lenders have collateral if a borrower cannot repay, whereas payday loan lenders do not.

Title loan lenders are guaranteed payment back via funds or through repossessing the borrower’s vehicle whereas payday lenders take more risk since if their customer’s default on a loan they can be out of pocket. As a result, title loans usually have lower interest rates than payday loans.

The amount that you can borrow with a title loan is also dependent on the value of a vehicle whereas this is not the case for payday loans. Payday loan lenders usually take into account other factors such as the customer’s credit score rating and whether they have a regular income.

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Can I Get A Title Loan If I Have A Bad Credit Score?

 

It is also possible to get a title loan if you have bad credit. As long as you hold the title to a vehicle, you can get a title loan if you have a poor credit rating as the title for your vehicle can be used as collateral in case you fail to repay. Since the loan is tied against the vehicle, the lender will have security that the loan will be repaid in someway, even if the borrower cannot keep up with the scheduled repayments so for this reason, many title loan lenders do not even conduct a credit check in the first place.

As well as this, title loans typically do not impact credit scores since most are secured without a credit check.

 

Is A Title Loan Right For You?

 

If you are in need of urgent cash, a title loan can offer a suitable option for you. With potentially lower interest rates than a payday loan, it may be a cheaper way to borrow money, especially if you have a low credit score. So if you have an urgent expense such as an emergency medical bill or car repair, then you could consider a title loan.

However, you must be absolutely certain that you will be able to meet the repayments as there is a large risk your vehicle will be repossessed if not. If you are worried about meeting the repayments, then you could consider alternative ways to borrow money, for instance from family or friends, via a credit union or bank or through a low interest credit card. Alternatively it may be best for you to sell your car to get access to fast cash.

Justine Gray

Justine is a full-time writer, specializing in household income and consumer finance across the US.