For most people, taking out a loan of any amount presents a certain amount of risk. And when it comes to financial matters, human nature normally leads people down take the path that presents the least risk.
Title loans are actually one of the least risky ways to borrow money, despite the fact that they carry higher interest rates than conventional bank loans. Why? The answer is simple: because people rarely default on a title loan!
Wondering why you’re unlikely to default on a title loan and what else makes them special? Keep reading to discover the answers.
What Is a Title Loan?
We’ve put together a comprehensive guide regarding why title loan defaults are so rare. Before we go any further, we should define exactly what a title loan is.
As the name implies, this is a loan where you put up one of your assets as collateral to secure a temporary loan. The most common form of this is a title loan where a person’s automobile serves as collateral.
In exchange for the money, the borrower owner gives the lender temporary access to the car title. And if the borrower should default on that loan, the lender has the right to repossess the car as its rightful owner.
That may sound scary, but the truth is that both defaults and repossessions are very rare. Here are just a few of the reasons why this is the case.
The first reason that it’s rare to default on title loan is very simple. It’s because the borrower is “driven” by a very powerful motivation!
Most of the time, someone getting a title loan either cannot or does not want to work with a traditional bank. They are motivated to work with the lender in order to maintain future easy access to loans.
Furthermore, outside of major metropolitan areas, it’s almost impossible to make a living without a car. Someone who loses their vehicle loses access to their only reliable way to travel to and from work.
Finally, lenders are far less likely to repossess a car than you may imagine. That’s largely because there are many other options that mutually benefit both the borrower and the lender.
As we said, the idea of defaulting on a loan and losing your car is very scary. And many people imagine this is something that will happen as soon as they miss a single payment.
In reality, most lenders will advertise specific defaulting terms that the borrower must agree to. In other words, you wouldn’t really be in trouble until you defaulted past that point.
And on top of that, there are often options to rollover your loan for an additional length of time. In that case, someone in danger of default could fix things with a single phone call!
Title loans are often confused with payday loans, but they are not the same. One of the reasons for this is that they each typically last for a month.
Both types of loans are more intended for quick cash. This allows a borrower to effectively pay back what they owe once they get paid at the end of the month.
Most title loans, however, give borrowers the option to roll over the loan for another month (or longer) as needed. While this compounds the amount of interest that you owe, it is one more reason that you are unlikely to actually default on a title loan so long as you communicate your situation to the lender.
Borrowing the Right Amount
What do you think is the primary cause for defaulting on a loan? For many people, the answer is simple: they end up borrowing more money than they can reasonably pay back.
A mortgage is a good example of this. A standard 30-year mortgage looks easy enough when you have a good job. But if your financial situation changes, you may suddenly be unable to make the payments.
Title loans have two primary advantages over more traditional loans. First, the timeline is shorter: you only need to worry about the next 30 days instead of 30 years. Second, you cannot borrow more than what your collateral is worth.
That means you’re unlikely to borrow too much money. And by borrowing the right amount for your needs, you are much less likely to default.
No Default On Title Loan: Working With the Lender
We’ve mentioned this before, but it bears repeating: as long as you work with your lender and keep communicating with them, you are unlikely to default. That’s because at the end of the day, the lender doesn’t actually want to repossess your car.
From their standpoint, it’s far easier to help you roll over an existing loan instead. They get more money via interest and you get more time to pay the loan back. In this way, everyone wins.
This is another reason that you need to pick out a local lender you can trust. When a lender is more interested in helping than community than simply making a profit, they are likelier to work with you if you are experiencing financial difficulties.
The Odds Are In Your Favor
Still worried about defaulting on a title loan? Believe it or not, the odds are very much in your favor!
Back in 2012, the University of Houston Law Center surveyed 400 people who had title loans in the Georgia, Idaho, and Texas area. And what they discovered was fairly shocking.
According to the research, less than 10 percent of vehicles involved in title loans ended up getting repossessed. And while their research was limited to those 3 states, it seems to illustrate the simple fact that title lenders are unlikely to repossess a vehicle.
Why? For the same reasons we’ve already covered: it’s easier to work with borrowers and let them roll loans over than to try to collect on the original loan.
This is just one more reason you can “breathe easy” when getting a title loan.
Now you know why you’re unlikely to default on title loan. But do you know where you can get a title loan when you need it?
Here at Georgia Title Loans, we specialize in getting you the money you need exactly when you need it. To see what we can do for you, contact us today!