For many folks, the world of personal finance is hardly cut and dry. Sure, most people would love to walk into a bank with a prime 700 credit rating and get a low interest rate on that dream-home mortgage or student loan. But this isn’t an option for the many that are struggling day in and day out. And without a strong credit rating, there are few places to turn when the hard times do hit.
Having said that, there are alternatives to traditional loans, one of which is a title loan. Title loans involve the borrower putting up his or her vehicle as collateral in exchange for cash. This may sound simple enough, but those who are considering going down this road need to keep a number of things in mind to ensure the smoothest process possible.
High interest rates there’s no getting around it: a title loan is going to come with high interest. The borrower is going to pay more than he or she would with a typical bank loan. However, not all title loan interest rates are the same. The numbers vary state by state (and some states have banned them entirely). For example, the state of Montana has put a firm cap of 36% interest on title loans no matter the amount the borrower takes out.
On the flip side, a state like South Carolina can charge all the interest they so choose – but only if the amount of the loan surpasses $600. Certain freedoms not all interest rates are set in stone, and this is true as much for title loans as it is for bank loans. Borrowers have some negotiating room here, and should try and explain their current financial situation and what they ultimately hope to pay in interest to the loan company. Doing so might just yield a slightly lower interest rate than advertised. Quick cash once the loan is approved, most title loan companies put the money in the borrowers pocket the same day.
And it’s just this infusion of quick cash that makes a title loan an attractive option for some people. However, financial professionals caution against rushing to quickly into a title loan agreement because this system can be abused. In fact, the state of Virginia (as well as many other states) already have laws on the books preventing people from taking out a second title loan within 24 hours of paying off their first. Risk of vehicle loss when it comes to title loans, the collateral in question is the borrower’s vehicle.
And like any loan collateral, this vehicle can become the property of the lender in the event of default. Because most title loans charge such high interest, the best course of action for the borrower is to pay off the loan as quickly as possible in order to ensure he or she does not lose that car.
So in the end there are many considerations one must take into account before signing for a title loan. Above all else, the borrower must be dedicated to paying off the loan as quickly as possible, as this is the only sure-fire way to avoid compounding interest fees and possibly the loss of the vehicle. Rachel Eagan is a professional blogger that shares financial advice and information to consumers. She writes for Title ax, where you can apply for an auto title loan, pawn and bad credit loans online.