If a financial emergency pops up and you aren’t able to cover it, you’re not alone. In the U.S. about half of Americans reported that they couldn’t handle a $1,000 financial emergency. This is where title loans offer a much-needed lifeline.
To help you decide if a title loan is right for you, we’ve rounded up everything you need to know about these popular lending choices. From qualifications to the benefits, think of this as your go-to title loan guide.
What is a Title Loan?
A title loan is a loan in which borrowers use their car, boat, motorcycle, or other vehicles as collateral for a loan. You’re given cash for your car or cash for motorcycle title while still getting to keep your vehicle. Because you use your car or vehicle as collateral the lender is able to repossess it in the event that you don’t pay the loan back on time.
Applying for a title loan is a lot easier than with a personal loan or mortgage, for example. Title loans are often short-term loans. You may also have higher interest rates.
How Do Title Loans Work?
As long as you own the vehicle, boat, or motorcycle, outright, you can apply for a title loan. You also can’t have any liens on the property. The application process is fairly simple compared to traditional loans or a home mortgage. To start, you’ll need your license and proof of your title.
During the approval process, your lender may also run your credit. Once you’re approved, your lender gives your loan terms. Interest rates are typically higher than with other types of loans. This makes paying them back important.
If you fail to pay your loan back within the allotted time, you could face losing your asset. You may also negotiate a longer loan term before your time is up. This allows you more time to pay back your loan.
Should I Get a Title Loan?
A title loan can work well if you need money in a pinch. If you own your car or other vehicles, a title loan offers you a chance to use it for a short-term financial emergency. While using a title loan, you’re still able to keep your car or motorcycle.
There are several reasons why someone would get a title loan. Because the loan terms are short, these should only be used for a short-term financial emergency. Many people use title loans to pay medical bills, pay off debt, emergency repairs, and car maintenance.
Let’s say you need to pay for an emergency car or home repair and you won’t have the funds available until your next payday. Once you receive your paycheck, you then pay off your loan in full and get back the title to your car.
While it’s great to use an emergency fund if you can, not everyone has cash on hand to use when something comes up. When you’re in a pinch financially, it’s nice to have your car, motorcycle, or boat to fall back on if needed. You’ll have the funds you need to get back on your feet.
Title Loan Benefits
There are several benefits to getting a title loan. First, a title loan allows you to still keep your vehicle and drive it as you normally would. You get to use that vehicle to receive cash when you need it quickly.
You’ll have access to fast cash on a short-term loan. There’s no need for a 30-year loan. The process of getting your cash is also simple.
There are often no credit requirements with a title loan. This means if your credit score is less than perfect, you’re still able to qualify. You won’t have to put money down or pay closing costs like you would with a home loan or second mortgage.
With a title loan, you’re able to qualify and get your cash quickly. After you apply, you’ll be able to get your cash within a couple of business days. There isn’t a long waiting and approval period. This is great for emergencies.
Cons of a Title Loan
With any loan or debt, there are a few considerations to keep in mind before you apply for a title loan. First, consider what would happen if you fail to make your payment. You’ll lose your car or motorcycle if you don’t pay back your loan.
If you have the option to extend your loan, this may lead to a debt trap. You extend your loan for longer and then run the risk of paying a high-interest rate. With title loans, you’ll have a higher interest rate than you would with a personal loan.
To keep your interest and payments in check, borrow responsibly. A title loan is a great opportunity to access cash in a pinch. If you can’t afford to pay it back after your loan is up, don’t take out the loan.
Remember that your car or vehicle is at stake when you use a title loan. Keep the loan to something you know you can pay back after payday, for example. You don’t want to pay expensive interest fees or lose your car.
Title Loan 101
Getting a title loan is a great way to access cash quickly when you need it. If you own your car, motorcycle, or boat, outright, you can qualify for a title loan. In a financial emergency, sometimes you just need cash quickly.
Emergencies and unforeseen expenses happen. Using a title loan can help you get the cash you need in a hurry. For more money advice and resources visit the finance section.