A title loan is a secured personal loan in which the borrower must provide a car title as collateral. Lenders usually temporarily place a lien (claim) on your title until the loan is fully settled. In case of default, the lender reserves the right to repossess and sell it as a recourse for the debt owed.
How Does a Title Loan Work?
Car title loans are popular because they’re easily accessible and do not rely on the details of your credit history. All that matters to the lender is the value and condition of the vehicle you bring forth as collateral. In addition to this, lenders usually take into consideration your source as opposed to your credit rating. A title loan comes with higher interest rates regardless of its secured nature.
The loans are short-term and usually go for 15 to 30 days. They are easily accessible; you can acquire a loan in a matter of minutes. Borrowers can either opt for a one-time payment or use an installment payment plan.
If you default as per the agreement, the lender repossesses your vehicle immediately. While in default, you can redeem yourself by making interest-only payments within a month, while the actual loan amount is withheld temporarily until fully settled.
What Affects Your Loan Interest Rates?
Taking out title loans comes with additional costs. The amount of money you end up paying to the title loan lenders consists of extra fees and interest. This further depends on the borrower’s collateral, income, and repayment period. As such, what constitutes a good interest rate depends on these factors:
The value and condition of the vehicle used to secure a loan are pivotal. The amount you qualify for depends on the worth of your vehicle. Lenders use auction valuation to gauge the rate at which they will offer you a loan.
Lenders will assess your income sufficiency when fixing a loan interest rate for a borrower. Typically, lenders are not interested in your credit score. The higher the income, the lower the interest rate. The sooner you settle your debt, the lower your interest rate will be.
Debt-to-Income ratio (DTI)
DTI ratio is what you owe each month in expenses (rent, mortgage, credit cards, among others) compared to how much you earn. The lender can figure out your residue income that can settle the debt you’re applying for.
As a general rule, you should aim for a DTI ratio below 43%. If your DTI ratio is above this, the lenders will either deny you credit or offer one with a higher interest rate.
The loan amount and repayment period also affect your interest rate. The smaller the loan within a shorter repayment period, the lower the interest rate, and vice versa. Lenders usually treat short-term loans as less risky than long-term ones.
Get a Title Loan Today
Getting a title loan using your vehicle as collateral is a viable way to easily access cash in a time of need. The value of your vehicle determines whether or not you qualify for a loan and at what rate. Title loan lenders are also more interested in your ability to repay the loan. You can demonstrate your ability to settle the debt via proof of income.
Once you resolve your financial needs, your obligation is to pay off the loan and reclaim control of your vehicle. It can be a simple, hassle-free process. This only requires your effort in making timely payments, as once you settle the debt, the loan company discharges the lien on your title.