Auto title loans are short-term secured loans that allow you to borrow a certain percentage of your car’s value. To do this, you’ll need to put up the car title as collateral. The requirements to qualify for this loan are often not very strict.
Since many auto title lenders only finance cars that are paid off, you have to be the car owner to apply for a car title loan. In rare cases, you will find a lender that will give you money even if you have a balance on the car. This type of loan is referred to as a registration loan.
While these are the basics, getting a car title loan can take more work than exchanging your car title for money. Below, we tell you everything you need to know about car title loans and the requirements to get a title loan.
How Do Car Title Loans Work?
The loan amount a borrower is given usually varies by lender and state. Averagely, people borrow money or a minimum loan amount of up to $1,000. However, how much cash you receive can be higher or lower depending on various factors. Typically, you will be expected to pay the loan within 15 to 30 days, but in some cases, the way a car title loan works is the terms may allow more extended repayment periods. The amount you get is usually 25 to 50% of the value of your vehicle. Vehicle, in this case, could mean anything from RV’s, motorcycles, and even boats. In addition, you will be charged interest and other fees, including origination, documentation, and processing fees. All these will be added to the loan amount.
One of the main reasons why people are opposed to car title loans is because they have high-interest rates. For instance, a title loan may be given at a monthly fee of 25%. This translates to an annual percentage rate of 300%, while you have not added the other costs that come with the title loan. Therefore, you could expect to pay about $1200 for a $1000 loan. This could be dangerous, especially if you are a borrower whose auto loan payments significantly affect your monthly income.
What Happens if You Fail to Pay the Car Title Loan Within the Stipulated Period?
You should try your best to repay the balance by the end of the term. However, if this is impossible, some states will allow you to refinance your title loan and roll over the loan into a new one. This could be a lifesaver, especially if you want to keep your car. However, if you are not careful, you will see increased amounts in terms of interest.
Thankfully, many borrowers can pay back what they owe on time, allowing them to keep their cars and avoid hefty interest loans and administrative fees that come with continuously rolling over a loan into a new term.
Car Title Loan Requirements
You must meet a few requirements when applying for loans against your car title. Below, we outline them.
Proof of Income. One of the most crucial requirements will be proving that you have a reliable income source. Ideally, you should have a steady job. However, in other cases, people who do not have stable jobs can still qualify. For example, you could be self-employed, on unemployment, or have an annuity or trust. Your income is crucial in helping you reach your end of the bargain, as you will need to repay the amount in a specified amount of time.
You must provide government-issued identification to prove that you are an adult and a citizen of the United States. Underage individuals cannot be given a loan as they cannot make sound financial decisions. Furthermore, identification is crucial to help deal with unscrupulous individuals who try to defraud loan lending companies. The names on your identification should match those provided on other documents, such as the title. As such, you should furnish your lender with identification, allowing you to prove who you are.
Original vehicle title
Apart from the standard identification, you must have the vehicle’s title showing that you are the car’s sole owner. Most car title loan lenders will not allow loans on a car with a pending balance. In such a case, you will get what is referred to as a registration loan. The vehicle title loan will remain with the loan company, but you will be allowed to go with your car in most cases.
Proof of Residency
You need to have proof of residency or a utility bill that matches the name on the title. The proof of residency shows that you are in a stable living situation. This is crucial as it builds your case with the car title loan company.
Proof of Ability to Repay the Loan
In an ideal situation, you should have proof of funds by showing recent pay stubs from your jobs. However, this is not a personal loan you can take from banks and credit unions. Therefore, you may not have any pay stubs to prove you can pay back. As long as you have a source of funds and can prove it, you will be allowed to use your car as collateral.
Current Vehicle Registration and Proof of Vehicle Insurance
The vehicle registration acts as proof of ownership when taking the loan. You also need to show proof of vehicle insurance. This is crucial because for the period you have the lender’s money, the car is assumed to be an asset for the loan lending company. Therefore, the lender must protect the vehicle in case of a car crash or accident. If there is any damage, the company will need insurance to cover it until you can pay off your loan. Your insurance company can help you know the right cover for your needs when taking a loan. Therefore, you must involve them throughout the process.
Two Valid References
Apart from what we have listed above, your car title loan lender will need references who can vouch for you before giving you cash. Therefore, they will need at least two references’ names, phone numbers, and addresses.
Copies of Your Car Keys
As stated above, your vehicle will technically belong to the lender. Therefore, you will need to hand them a copy of your car keys. The company will likely attach a GPS tracking device to your vehicle at this juncture. The car title loan company usually takes this step to ensure that should they be frustrated by a borrower’s inability to pay back, they can repossess the vehicle. In addition, some of these devices can allow the lender to disable the car remotely.
Interestingly, not many people reach the point where their vehicles are repossessed. You can usually take steps to ensure that you are in good standing with your lender even when you cannot pay the loan as per the agreement.
Follow the link if you would like to find a title loan provider in your state.
Will Lenders Check Your Credit Score?
When you borrow money from unconventional lenders, they will not check your credit score in many cases. You will not even need a good credit history to get the loan. The amount you will be getting will depend mainly on the resale value of your car and your ability to repay the loan. Therefore, you will not need a credit check or employment as long as you can prove that the title is yours and you have alternative income sources.
What are the Rates for Title Loans?
You may notice that most lenders offer loans at interest rates that are typically higher interest rates than most unsecured loans from lenders. While these loan rates are typically higher, they make up for the ease and convenience with which you will get a title loan. In most cases, the companies will also charge additional fees associated with processing the paperwork. Many lenders charge a lien fee. Some states regulate car title loan lenders, and if yours is one of such, it is best to check whether your title loan company near you is working within limits. Ensure that you review and add up all the fees your lender will charge when borrowing.
Alternatives to Title Loans
While auto title loans may be the only thing on your mind right now, it may be good to know that you have options. Some of your best bets include a personal loan with a co-signer, credit cards, credit card advances, and borrowing from a bank. You can negotiate with the lender if you have already taken out an auto title loan. Some lenders are willing to negotiate new terms for the current loan. In other cases, the lender could lower your rates depending on how much you have paid back, waive your fees, or offer you a different payment schedule than the one you are currently on. Avoid feeling stuck and talk to your company if you will not meet your repayment obligations at any time within the contract.