How a Title Loan Works!

How a Title Loan Works!

If you need emergency cash and your bad credit score is preventing you from obtaining loan from conventional loan services, a car title loan might be your way out. With a title loan, you can access emergency funds without being subjected to excessive verification and credit check. This looks pretty smooth but if you aren’t careful, you can end up in more debt and even lose your car.  

How Car Title Loans Work

If you were to take some expensive valuables to a pawn shop, the attendant would access the worth of your valuable and give you a cash amount equivalent to the value of your valuables. This is similar to how car title loans work except that the lenders will not collect your vehicle. Instead, they lend out the money and charge a certain interest on it. If you default on your payment within the stipulated time, the vehicle would be retrieved from you.

In summary, the lenders evaluate the worth of your vehicle with respect to its savage value and gives out a certain percentage of its value as loan to you. Your vehicle title is then withheld until you pay back the borrowed amount and interest. The interest rate is usually on the high side because it is a short-term loan with high risk. Failure to pay back means you have automatically sold your vehicle to the lending company. 

How much do Car Title Loans cost?

Lending companies usually charge a monthly interest. It can be as high as 25% of the money borrowed. 

For instance,

If the amount borrowed is $2000 within 30 days and the monthly fee is 25%,

$2000 x 25% = $500

Therefore, the amount owed at the end of 30 days = $2000 + $500 = $2500 

How to Compare Costs

The majority of loans come with an annual percentage rate (APR). The APR stipulates the cost of borrowing funds within a year. After getting a car title loan, the APR must be stipulate in the agreement between you and the lender. The APR is usually based on:

• The interest rate monthly

• The amount borrowed

• The duration it would take to repay 

For instance, If an amount of $1000 is borrowed and repayment is to take one year, the cost of borrowing that money should be compared;

• For a bank whose APR is 7.5%, it will cost $42 in interest to borrow $1000.

• For a car title loan whose APR is 20%, it will cost $112 to borrow $1000.

• For a credit card whose APR is 300%, it will cost $2,222 to borrow $1000. 

Are Car Title Loans a great idea?

Unlike Vehicle pawns, title loans allow the owners of the vehicle to remain on the road so far they don’t default their payment. The process of applying for title loans online today is fast, convenient and straightforward. It is however imperative to fully understand the terms of a title loan before signing the dotted lines.