What Are Title Loans and How Do They Work?payday loans near me
Title loans are a form of funding in which you use your vehicle title as collateral in exchange for the loan funding. It’s typically used by borrowers who need financing but have bad credit and don’t qualify for other types of personal loans.
In business, title financing is typically used to borrow funds for purchasing equipment. Because title loans are secured, there’s a large amount of risk involved for the borrower, who could lose the vehicle if they default. If you’re considering this kind of loan, it’s important to understand how they work and what other alternatives you might consider before you apply.
How Do Title Loans Work?
Typically, a title loan is a short-term loan that needs to be paid back within a small window of time, often around a month. The application and approval process are easy and often doesn’t even require a credit check-which should be your first red flag. With a title loan, you have to hand over the title to your vehicle in order to get the cash. You can still drive your car, but it’s in danger of being seized by the title lender if you don’t pay back your loan on time.
Title loans can be found both online and from brick-and-mortar lenders. In order to potentially qualify for title financing, you either need to have substantial equity in the vehicle (as in a very small auto loan balance) or, in some cases, you may need to own the car completely. You can typically apply to borrow up to 50% of your car’s current value, with most title loans ranging from $100 to $5,500 .
Title Loans Vs. Personal Loans
One of the biggest differences is that a title loan is secured, while a personal loan is typically unsecured (in which case it’s also called a “signature loan”). If you default on a signature loan, you may be held liable for the money you owe, but you usually can’t have your assets seized by the lender to repay the balance.
Title financing is also typically much more expensive than a personal loan, with car title loan interest rates reaching triple digits. Plus, you usually have to repay a title loan within 30 days. It’s easy to get trapped in a debt cycle if you can’t make the full payment by that time. You may be able to roll over the loan balance, but you’ll usually incur hefty fees on top of an APR that’s already sky-high.
An unsecured personal loan, on the other hand payday loans East Liverpool, typically has a fixed rate and a longer repayment period. Your payments may be more affordable because they’re spread out over time. You may incur late fees if you miss a payment, but you don’t have to worry about rolling over your balance-most unsecured personal loans don’t permit the practice.
When to Consider a Title Loan
Title loans are typically used by people with bad credit who can’t get financial assistance anywhere else. The funds are often used to cover an emergency.
Generally, a title loan is considered only as a last resort. You should also explore all of your other options before seriously considering title financing for personal use. And it’s certainly not a good idea to take one out for anything that’s not absolutely necessary.
Using Title Loans for a Business
Title loans for business work differently than standard personal title financing. Also called equipment financing , this kind of loan allows companies to borrow funds to purchase equipment. Many kinds of business use equipment, from the bulldozers a construction company ent a restaurant might use to the computers an accounting firm might rely upon. Any of these businesses might take out an equipment loan to purchase these necessities. The equipment is then used as collateral for the loan.