When it comes to securing financing for emergency expenses, there are a large number of options to consider.
Title loans are one of the most popular choices to consider which can offer the financing you need.
With that said, there are certain requirements to be aware of before applying for this loan type.
What is a Title Loan?
To those unfamiliar with the term, a title loan is a short-term loan secured by the borrower’s vehicle, that provides that borrower with a sum of money typically within 25%-50% of the value of the vehicle title.
Most title loans have a shorter repayment period of just about 30 days on average, which results in a higher interest rate associated with the loan.
Title loans often have an average monthly finance fee of 25% which equates to an APR of around 300%.
Documents Required for a Title Loan
If you are attempting to get a title loan on an old car and are wondering what you will need to apply, below are the common documents that will be required:
- You will need to show an original vehicle title that lists you as the owner
- Government issues identification that show you are the person listed on the title
- Up to date vehicle registration
- You will need to show proof of vehicle insurance
- Proof of income such as paystubs to show you are capable of repaying the loan
- References who will vouch on your behalf
Title loans are famous for not having many requirements compared to other forms of financing.
In fact, most lenders will not run a credit check before making a decision on whether or not you are approved for a title loan, which makes it an enticing option for those with lower credit scores.
Title Loan Terminology to Be Aware Of
When it comes to a title loan, there is certain terminology to be aware of that can help you better understand the terms of your loan.
Most of these terms carryover to other loan types, though the specifics change depending on the loan type:
- The Principal: This part of a loan refers to the amount of money you are borrowing from a lender. As mentioned, most title loans have a borrowing amount ranging from 25%-50% of the value of the title to your vehicle.
- The Interest Rate: All loans come with an interest rate which is how a lender makes their money. Given the short tenor of a title loan, the interest rate tends to be higher as a result.
- The Monthly Payment: Your monthly payment, if on an installment plan or borrowing a loan that requires monthly payment, is what you pay on a regular basis towards the loan principal. The monthly payment will include the current portion of the principal due, the interest, and any associated fees.
- The Collateral: With a title loan, and other forms of secured loans, there is collateral required. With a title loan, your vehicle serves as the collateral, meaning the lender can take possession of your vehicle if you fail to repay the loan.
- The Tenor: Finally, the tenor of a loan refers to how long a borrower has to repay the loan in full. For a title loan, the tenor is typically 30 days, but other loans such as a mortgage can have tenors as long as 30 years.
Factors to Consider Before Taking Out a Title Loan
Before making the decision to take out funds through a title loan, keep some of the following factors in mind:
- If you fail to repay the funds borrowed with a title loan, you may lose ownership of your vehicle
- The interest rate associated with a title loan is far higher than other types of loans given the short repayment period
- Considering the short repayment period, you should only borrow a title loan if you know you will have access to the funds shortly
- You need to either own the vehicle you are putting up as collateral or have majority equity in the vehicle
Bolster your finances today
So long as you are in the financial standpoint to meet the repayment of a title loan within the agreed upon time, title loans can be an excellent financing choice.
Be aware that you are at risk to lose your vehicle if you cannot repay the loan in a timely manner, which is why you need to be sure you can meet the loan obligation.
Read Personal Finance.