Title loans are a popular option when it comes to short-term loans, especially among consumers who don’t have the best credit scores.
If you’ve never gotten a title loan before but you’re considering it, it’s smart to find out how they work first. This guide to the basics of title loans will have you covered.
The Title Loan Process
With a title loan, you’re using your car as the collateral, and this means it’s a secured loan. You’ll have your car during the loan term, but the lender will have your car title, which you get back upon repayment.
Getting a title loan is quick and simple. By going through the following process, you could get a title loan today:
- Go to a title loan company’s office and fill out paperwork for the loan.
- Wait for an employee to check out your car and figure out its value.
- Provide your car title to the lender.
- Receive your loan.
In most states, all you need to get a title loan are:
- A government-issued ID
- A car
- A car title
A select few states will also require that you show proof of income. This is because most regulations on title loans are done at the state level, and every lender in that state must follow those laws. For example, anyone offering Austin title loans is subject to Texas’s loan regulations.
There’s no credit check to get a title loan. After you’ve gotten the title loan, you’ll have a payment due date. This also depends on your state, but in most states, your title loan is due 30 days after you borrow it. If you reach that date and can’t pay it off, you can choose to pay the interest and fees to extend the loan into a new term of equal length. In this new term, you’ll have additional interest and fee charges.
Potential Pitfalls of Title Loans
As convenient as title loans are, there are also risks to keep in mind before you apply. The problem is that they often have high interest rates and short terms, which means you need to pay back much more than you borrowed in just 30 days. For the typical borrower, this could be unrealistic.
Your only options then are to extend the loan, costing you more money, or allow the lender to repossess and sell your car. Neither of these are ideal, although extending the loan at least prevents you from losing your vehicle.
These risks are why it’s so important that you have a plan in place to pay back your title loan. Don’t get one without any idea of where the money will come from to pay it back, otherwise you could end up trapped in a cycle of debt that keeps getting worse.
Deciding If a Title Loan Is Right for You
For more information on title loans, you can look up title loan laws for your specific state. This is a good idea because the laws can be much different depending on where you are, and certain states have much more reasonable interest rate limits than others. Consider all the terms to decide if a title loan fits your current financial needs.