In recent years, the financial lending sector has seen an increase in the types of alternative credit available to consumers. The increase in these types of loans has mainly arisen from the need to provide loans to individuals with bad credit history or who are experiencing a financial emergency.
One example of an alternative loan that is available even if you’ve got a bad credit score is a car title loan.
What is a car title loan?
A car title loan is a short term loan that uses your car as collateral or security for the debt. Typically, title loans are expected to be repaid in one lump sum after an initial term (usually 30 days). You can learn more about the ins-and-outs of title loans by reading this U.S. News article.
Title loans are quite expensive. The average APR or annual percentage rate for a title loan is around 300 percent. This means that the monthly interest rate for a borrower with a title loan would be about 25 percent. As an illustrative example, if you were to take out a loan of $1000, the interest you would have to pay back at the end of the month would be $250. As well as high-interest rates, borrowers in receipt of title loans are often subject to high fees.
Signs that a car title loan is the right option for you
You’ve got a history of bad credit
Firstly, an auto title loan might be suitable for your needs if you have a bad credit history. Often banks will not approve your application if you have a low credit score. Many lenders like 3-Step Title Loans, Cash Store, and Affordable Title Loans are not interested in exploring your credit history and usually will not even perform a credit check.
To get approval for a car title loan, many lenders just require you to own a car. Please note that a lot of lenders do require that you own the car in-full and have no outstanding car payments. There are exceptions, however, and you still might be in a position to secure a car title loan with some lenders even if you have outstanding payments left on your car.
You’re in need of credit quickly
Title loans might be a suitable option if you need credit quickly. Sometimes people need quick access to cash if they find themselves faced with a financial emergency, such as losing a job or being burdened with an unexpected expense.
If this applies to you, a title loan may be a good solution. These loans are generally approved very quickly, sometimes in less than half an hour after your application has been submitted. Additionally, you could have access to the money within 24 hours of being approved.
However, there are also certain risks you will need to consider when thinking about applying for a car title loan.
Ensure you’ll be in a position to repay the loan in full and on time
If you’re considering applying for a car title loan you need to be certain that you’ll be able to repay the full amount on time.
In calculating the full amount you have to repay, you’ll have to take both the interest rate and all additional fees into account.
Also, you should not sign up for a car title loan without first examining the lender’s terms and conditions in detail. Make sure that you are fully aware of all fees that might apply.
Consequences of defaulting on your loan
If you are unable to make a timely repayment there are several potential consequences.
First, the lender may repossess your car if you are not able to repay the loan. Statistics show that around 20 percent of cars end up being repossessed because the borrower fails to make the repayment.
Secondly, if you are unable to make the payment at the end of the initial term, the lender may allow you to take a second loan. However, this may result in further financial hardship, by increasing the amount you owe to the lender. As well as the monthly interest compounding, you might also be subject to additional charges for a late payment.
If you are considering applying for a car title loan because you’ve a bad credit history or find yourself faced with a financial emergency, you must first make sure that you’ll be in a position to repay the loan on time. Unfortunately, if you do not have the means to repay the loan, you may cause yourself more financial hardship in the long run. It’s vitally important that you read the fine print of the loan agreement. This way you’ll be able to determine if you have enough to cover the repayment, including any hidden fees and charges that might not be initially apparent.