How to Get the Right Title Loan

We’ve all been in the situation – you need a short-term influx of cash for something but you can’t get a bank loan or overdraft.  Maybe you work from home and your computer has gone up in smoke or maybe the kids have broken the TV.  One option that you can consider if you have a vehicle or something as collateral is a title loan – but what are these loans and how do you get the right one?

What is a title loan?

A title loan is simply a loan that you take against something that has value – the most common type of these is car title loans.  In this situation, you take the loan against your vehicle and if you don’t pay it back, the ultimate situation could your car being repossessed.  Typically, car title loans will allow you to borrow up to 25% of the value of your vehicle and the lender would keep your car’s title until the loan is paid off.

There are also different payment options available.  Normally, you would pay the entire amount due after a month.  But there are also types of loans where you can pay back smaller amounts over a longer period of time, as much as two years in some cases.  Whatever the payment terms, if you don’t make the payment, the lender is within their rights to take your car.

What do they cost?

In addition to payment terms, one of the most important things to understand about these forms of credit is how much they cost.  Companies need to disclose title loan interest rates before you commit to them so you know exactly how much it is going to cost over the full term of the loan.

Figures will be quoted in annual percentage yield or APR.  This will seem high because it is an annual figure – 100-300% is not uncommon on this type of loan.  But remember in most cases, these loans will only last for a month.  For a $500 loan taken for one month with an APR of 300% would mean you would need to pay back $625 at the end of the loan period.

Knowing when to use them

Title loans are an option when traditional types of credit such as credit cards, bank loans and overdrafts aren’t available.  Always understand the terms and when you need to pay back the loan as well as how much interest you will pay.  And if you think you are going to have trouble paying it back, get in touch with the lender immediately to discuss.