Sometimes, life just happens and you need to get extra funds as soon as possible.
You might be dealing with a medical emergency, debt payments, or even a global pandemic that caused Georgia’s unemployment rate to skyrocket up to approximately 15% in 2020.
All of these are situations that might call for having a chunk of money on hand to weather in some modicum of grace. This brings us to short-term loans like car title loans. If you’re unaware of how car title loans work, you’ve come to the right place.
Keep reading for our beginner’s guide to all things car title loans, from how to apply to one, to the perks and drawbacks to getting a car title loan.
Car Title Loans: What Are They?
Before jumping right off the deep end and discussing title loan rates, let’s cover the basics. In the simplest of terms, a car title loan is a type of loan that provides a sum of money almost instantly, with the expectation of payback over a period of time, usually around 30-days. However, the time frames for paying back a title loan can vary.
A title loan is a secured loan, which means it uses an asset that you own as collateral in exchange for giving you the loan amount. In this case, it’s a vehicle that you own outright, or have enough equity to cover the loan amount.
Getting a Car Title Loan: Overview of the Process
With other types of loans, different lenders will prioritize different steps of the process.
However, when it comes to car title loans, there is a foundational process that’s almost the same across all lenders.
First, you’ll want to contact a reputable company that specializes in offering car title loans, then you’ll be asked to submit documentation to verify certain personal information.
For example, you might be asked for a copy of your valid state drivers license, your application form, proof of income, the clear title of your car, as well as your car insurance information.
In addition to all of the documents, you should be ready to allow a physical inspection of your car. Your lender will want to verify your car’s condition.
At this point, you’ll be waiting for the decision to be made on your car title loan application, and that could happen in 30 minutes or less. If you’re approved, you’ll then be giving the lender your car title paperwork and receiving your money in exchange.
What to Expect on the Costs of Title Loans
When you’re comparing different loans, you’ll want to take a look at the annual percentage rate, otherwise known as the APR. This is the rate that tells you how much will the loan cost you on an annual basis. Unfortunately, car title loans tend to come with pretty high APRs, but this is not a bad thing if you are have a plan in place to pay the loan back on time.
You should know that an APR will depend on a variety of factors, like the amount of money you’d like to borrow, the duration of the loan, how much fees you’ll be paying, as well as your monthly interest charges.
Your lender should inform you of your loan’s APR details, as well as the total cost of the loan in dollars.
The Advantages of Car Title Loans
Now that you have a good grasp on how car title loans function, it’s time to discuss their numerous benefits.
The main advantage of getting one is the speed at which you receive the funds. Generally speaking, car title loans will be processed within 30 minutes.
One of the other great things about title loans is how accessible they are to people with low credit scores. Unlike secured loans, you get to enjoy the very high probability that you will be approved.
Many lenders don’t even conduct credit checks or background checks, as all they need to determine is whether your vehicle’s worth equals the amount you’re requesting to borrow.
Furthermore, you don’t have to sacrifice having your car to drive, even with the loan in place. All you have to do is give the title to the lender and you can drive your car home.
The Disadvantages of Car Title Loans
Just as there are advantages to title loans, of course there are some potential disadvantages. The primary one is the generally high-interest rates of car title loans. Due to car title loans belonging to the family of short-term loans, it’s expected to see high-interest rates for the lenders to mitigate the higher risk.
The tricky part about higher rates is that if you can’t pay back the lender when the money is due, you might fall into the cycle of rolling over the loan, which can lead to higher interest rates and additional fees.
Besides, even with the perk of keeping your car with you during the loan period, if you can’t pay your loan off on time, your lender has all the legal rights to take possession of your car. However, it should be noted that this rarely happens. Car title loans don’t want your car; they just want you to pay the loan back on time.
Car Title Loans the Smart Way
If you’re just dipping your toes into the world of short-term loans, things might look a bit scary at first. However, we hope this beginner’s guide on car title loans detailing how they work, how to get one, and the benefits and drawbacks, gives you knowledge you need to decide if it’s the right choice for you.
Nonetheless, you’ll want to brush up on your financial literacy, so make sure to check out another or our recent blogs for all the latest tips and strategies.
For now, if you’re looking for car title loans near you, we’ve got you covered. Just contact us, and we’ll take care of you today!