Car title loans are acquired by transferring the car title in exchange of cash. Since they are very short-term secured loans, they tend to have a large interest rate compared to other sources of credit. People going through financial crises are mostly at risk of defaulting, therefore lenders feel the need of high-interest rates in case a borrower is unable to repay back in the credit period given. The lender will evaluate the wholesale market of the vehicle and will give you a loan according to what he thinks is best. In certain cases, the lender withholds your car until you return the loan. In others, lenders apply GPS tracking on cars or take duplicate keys for security.
Car title loans are becoming more and more common these days since financial institutions have limited lending and require a lot of paperwork before sanctioning a loan. Car loans, on the other hand, are easy to get and do not require a lot of paperwork. At the same time, this process is riskier and one may end up losing the car. These small emergency loans come with a three-digit interest rate against a very nominal amount determined by the lender to be paid in 30 days. In most states, there are no specific laws hence disabling any cap on the interest rate paid by borrowers. In recent times, to minimize the amount of fraud and risk, the government in the United States has started implementing rules for some states.
Documents required for car title loans
Car title loans do not require a lot of documentation and paperwork. They are fairly simple to get and do not require more than 15 to 20 minutes of your time. The lender makes sure that the car is not already pledged. The lender will require the model, make, mileage, year and title of the car and will make you sign the car title documents and hand over the cash to you. Some borrowers will also verify whether you can repay the loan or not and will require proof of regular income from a job or any other savings profit you will use to repay the debt. Less documentation and security check is one of the major reasons why car title loans are very popular in case of emergency.
Car title loans interest rates
Interest rates vary from state to state. Interest is due at each due date determined by the borrower and lender and ranges from 36% to over 100% of the outstanding amount. If the borrower is unable to pay the outstanding in 30 days, the debt along with interest will be rolled over the next month. The borrower then has to pay back the principal and the interest before he is declared as a defaulter. The government regulations limit the number of times an interest can be rolled over to avoid unlimited outstanding.
Some companies offer a 20% interest rate on the outstanding loan. If you are looking for easy financing, make sure you give possession of your car to a reliable lender who will not scam you. Lenders also offer monthly payment options to repay back the loan if you can’t pay back in one big installment.
In case of default
The lender will claim possession of the vehicle in case the borrower defaults. The lender is normally not keen to take possession of the car since it takes time to find a buyer and sell the car to collect his outstanding. In case, he is unable to buy a potential buyer the vehicle depreciates and loses its value at the same time.